question archive When prices are rising, which method of inventory, if any, will result in the lowest relative net cash outflow (including the effects of taxes, if any)? LIFO
When prices are rising, which method of inventory, if any, will result in the lowest relative net cash outflow (including the effects of taxes, if any)? LIFO
Subject:AccountingPrice:2.87 Bought7
When prices are rising, which method of inventory, if any, will result in the lowest relative net cash outflow (including the effects of taxes, if any)?
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- LIFO.
- FIFO.
- Weighted average
- None of these; inventory methods cannot affect cash flows.
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Answer:
D )
Step-by-Step explanation
The FIFO, LIFO, and weighted average are the methods used for inventory valuation which is for reporting purpose and for computing profit, so cash flow is not related to the method followed. When the company requires inventory, it will purchase without considering which method is followed. Under the LIFO method the stock purchased first is sold first, likewise, the management will also clear long dues first and it seems that both co-relates, but in reality, the management pays the long dues first without considering which method they are following, Hence, there is no link between the inventory method and cash flow outflow.
