Accounting Certification Practice Test 2026 – Complete Online Preparation

The correct choice highlights a fundamental distinction between the FIFO and LIFO inventory methods. FIFO, which stands for "First In, First Out," operates under the assumption that the oldest inventory items are sold first. This method is often advantageous in times of inflation, as it results in lower cost of goods sold (COGS) and higher ending inventory values on the balance sheet, since the newer, more expensive items remain in stock.

Conversely, LIFO, or "Last In, First Out," assumes that the most recently acquired inventory items are sold first. During inflationary periods, this can lead to a higher COGS and lower ending inventory on the balance sheet, as the older, cheaper inventory values remain.

The other options do not accurately reflect the primary differences in inventory accounting methods. For instance, while FIFO is indeed often used for perishable goods due to their nature, LIFO is not limited to non-perishable goods. Similarly, the discussion of fixed and variable costs does not pertain directly to the FIFO and LIFO principles, as both methods can be applied to any type of inventory without regard to these cost categorizations. The assertion that FIFO and LIFO have no significant differences overlooks the critical impact that each method has on financial