In a period of inflation, which method would likely result in lower taxes?

In a period of inflation, which method would likely result in lower taxes?

Step 1: Understand what inflation means. Inflation is when prices of goods and services increase over time.
Step 2: Learn about inventory methods. Businesses can use different methods to account for their inventory costs.
Step 3: Know the two common methods: FIFO (First In, First Out) and LIFO (Last In, First Out).
Step 4: With FIFO, the oldest costs are used first, which means lower costs are matched against current revenues during inflation.
Step 5: With LIFO, the newest costs are used first, which means higher costs are matched against current revenues during inflation.
Step 6: Realize that using LIFO during inflation results in higher expenses on paper, which lowers taxable income.
Step 7: Conclude that LIFO would likely result in lower taxes during inflation because it accounts for the higher recent costs.

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