Which inventory valuation method is most commonly used in the United States?
Practice Questions
1 question
Q1
Which inventory valuation method is most commonly used in the United States?
FIFO
LIFO
Weighted Average
Specific Identification
LIFO is most commonly used in the United States due to its tax advantages during inflationary periods.
Questions & Step-by-step Solutions
1 item
Q
Q: Which inventory valuation method is most commonly used in the United States?
Solution: LIFO is most commonly used in the United States due to its tax advantages during inflationary periods.
Steps: 5
Step 1: Understand what inventory valuation methods are. These are ways businesses calculate the value of their inventory.
Step 2: Learn about the different inventory valuation methods. The main ones are FIFO (First In, First Out), LIFO (Last In, First Out), and Weighted Average.
Step 3: Know that LIFO means the most recently purchased items are sold first, while FIFO means the oldest items are sold first.
Step 4: Recognize that during times of inflation, costs of goods increase. LIFO can reduce taxable income because it matches higher costs with current revenues.
Step 5: Conclude that because of these tax benefits during inflation, LIFO is the most commonly used inventory valuation method in the United States.
