A retailer’s cost of goods sold (and ending balance of inventory) are affected by whether the company uses FIFO, LIFO, or weighted-average cost to value its inventory.
In periods of rising prices, LIFO results in the highest cost of goods sold and thus the lowest net income. FIFO would result in the lowest cost of goods sold and highest net income, whereas the weighted-average cost method would result in a cost of goods sold that is in between the figures obtained by using LIFO and FIFO.
In periods declining prices, we would see the opposite: LIFO results in the lowest cost of goods sold and highest net income, whereas FIFO results in the highest cost of goods sold and lowest net income.
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