Final answer:
During inflation, LIFO causes lower income and taxes compared to FIFO in inventory valuation.
Explanation:
LIFO (Last In, First Out) is the inventory method that typically causes lower income and taxes during periods of inflation. This is because LIFO assumes that the most recently purchased items are sold first, resulting in higher cost of goods sold and lower reported profits.
On the other hand, FIFO (First In, First Out) assumes that the oldest inventory items are sold first, which leads to a lower cost of goods sold during inflationary periods, resulting in higher reported profits and higher taxes.
Therefore, during inflation, companies using LIFO tend to have lower income and tax liabilities compared to those using FIFO.
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