During periods of inflation,the use of FIFO (rather than LIFO)as the method of accounting for inventories causes _______.
A) higher inventory turnover
B) higher income taxes
C) lower ending inventory
D) higher reported sales
E) none of these

Question

Quizplus · Accepted Answer

During periods of inflation, the cost of goods sold is higher under FIFO than LIFO because FIFO assumes that the first items purchased are the first ones sold. This results in higher reported income and a higher tax liability. Therefore, using FIFO causes higher income taxes during periods of inflation. The other options are not affected by the choice of accounting method for inventories.

During Periods of Inflation,the Use of FIFO (Rather Than LIFO)as