In periods of deflation, what will lifo produce? lower total assets than fifo lower revenue than fifo the same retained earnings as fifo higher net income than fifo higher expenses than fifo

In periods of deflation, will lifo will produce higher net income than fifo.
FIFO is a short of the term "first in, first out," and LIFO is a contraction of the term "last in, first out". FIFO means that the goods which are added to inventory at first are expected to be the first goods removed from inventory for sale and LIFO means that the goods which are added at last are expected to be the first goods that are removed from the inventory for sale.

LIFO produces lower total assets than FIFO, along with other effects mentioned.

In periods of deflation, firms often face challenges that affect their financial statements, particularly how they value inventory and recognize costs. LIFO (Last In, First Out) and FIFO (First In, First Out) are methods used for inventory accounting that can lead to different financial outcomes.

Here’s a breakdown of what LIFO produces in a deflationary environment:

Lower Total Assets than FIFO: Under LIFO, the most recently purchased (often higher-cost) inventory is sold first. In deflation, prices are falling; thus, the older, cheaper inventory remains on the balance sheet. This means that the total asset value could be lower with LIFO compared to FIFO, where the newer, cheaper items are considered sold first.

Higher Expenses than FIFO: Since LIFO accounts for the newest inventory costs first, it reflects higher cost of goods sold (COGS) in a deflationary period. This leads to higher expenses compared to FIFO, which tracks older costs. As a result, the expenses recognized under LIFO can be higher than those recognized under FIFO.

Lower Net Income than FIFO: Due to the higher COGS recognized under LIFO, net income would be lower than under FIFO in a deflationary situation, where the newer inventory (likely bought at higher prices before deflation) is sold first.

Lower Revenue than FIFO: While revenue recognized does not directly relate to LIFO or FIFO, in a competitive environment, a firm using LIFO during deflation might have weaker pricing power, leading to lower revenue. However, this outcome can vary based on market conditions and competition.

The Same Retained Earnings as FIFO: In theory, if the only difference in accounting results is how inventory is valued, retained earnings could be similar over long periods, assuming no external factors change.

In summary, during periods of deflation, LIFO typically results in:

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