During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes
A) higher reported sales.
B) higher incomes taxes.
C) lower ending inventory.
D) higher incomes taxes and lower ending inventory.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

During inflation, FIFO (First In, First Out) results in higher reported profits because older, cheaper costs are matched against current revenues. This leads to higher income taxes compared to LIFO (Last In, First Out), where more recent, higher costs are deducted, resulting in lower taxable income.

During Periods of Inflation, the Use of FIFO (Rather Than