Which method implies that the most recently purchased items are sold first?

The method that implies the most recently purchased items are sold first is known as Last In, First Out (LIFO). This inventory valuation method dictates that the latest items added to inventory are the first to be deducted when a sale occurs. Consequently, this approach can significantly affect financial reporting and tax obligations, particularly during periods of rising prices.

Using LIFO can result in lower taxable income since the cost of the most recent, higher-priced inventory is matched against current revenues, reducing taxable profits. This method can also provide a more current reflection of the company’s inventory costs on the balance sheet, as older inventory costs remain on the books while the newer, potentially higher-cost items are recognized in income.

The other methods, such as First In, First Out (FIFO), Just In Time (JIT), and Average Cost Method, handle inventory management and financial reporting differently, with FIFO, for instance, selling older inventory first, and JIT focusing on minimizing inventory holding by aligning closely with production schedules.