When prices are rising, which method of inventory will result in the lowest cash outflow for income taxes?
A) weighted average
B) FIFO
C) LIFO
D) None of these; inventory methods do not affect the amount of income taxes.

Question

Quizplus · Accepted Answer

LIFO (last-in, first-out) method assumes that the most recently purchased items are sold first. So, during inflationary periods, the cost of goods sold under LIFO will be higher and will result in a lower net income, and ultimately lower taxable income. This reduced taxable income leads to a lower cash outflow for income taxes.

When Prices Are Rising, Which Method of Inventory Will Result