How does LIFO affect taxation?

Can you explain how the LIFO method affects my taxes?

Sure! LIFO, or Last In, First Out, means that the most recently purchased items are sold first. This can affect your taxes by potentially lowering your taxable income during times of inflation.

How does that work in practice?

In practice, if prices are rising, using LIFO means you report higher costs of goods sold, which reduces your profits and thus your tax liability.

Are there any downsides to using LIFO?

Yes, one downside is that it can lead to lower inventory values on your balance sheet, which might not reflect the current market value.

Is LIFO allowed under GAAP?

Yes, LIFO is allowed under GAAP, but it's not permitted under IFRS, so companies need to consider their reporting requirements.