Because FIFO yields lower profits than LIFO in a period of steadily rising prices, the FIFO method translates into lower tax payments.

Question

Quizplus · Accepted Answer

In a period of steadily rising prices, FIFO (First In, First Out) results in higher reported profits because the older, lower-cost items are recorded as cost of goods sold first. This leads to higher taxable income and thus higher tax payments compared to LIFO (Last In, First Out), which would report lower profits by selling the most recently acquired, higher-cost items first.

Because FIFO Yields Lower Profits Than LIFO in a Period