Which inventory method reflects the most recent costs of inventory on the balance sheet? What implications might this have that would be relevant for users of the financial statements to know?

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Business

Amari Mccarty

28 April, 23:31

Which inventory method reflects the most recent costs of inventory on the balance sheet? What implications might this have that would be relevant for users of the financial statements to know?

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Nash Wolfe · Answer 1

Which inventory method reflects the most recent costs of inventory on the balance sheet?

LIFO

What implications might this have that would be relevant for users of the financial statements to know?

This will mean that the profitability ratios will be smaller under LIFO.

The profitability ratios include profit margin, return on assets, and return on stockholders' equity.

Explanation:

LIFO, the most recent costs of products purchased (or manufactured) are the first costs to be removed from inventory and matched with the sales revenues reported on the income statement. This means that the oldest costs remain in inventory.