Inventory account and cash flow

[kpollar1]

Hey guys - I need some help here. For some reason I am always thrown off by this type of question:

In a period of falling prices, the use of LIFO will result in in lower COGS (I get that), higher net income (makes sense), higher taxes (makes sense) and lower cash (this isnt clear to me)

Whenever I get these type of questions I always get confused how cash is affected with different inventory accounting methods. Is the only thing affecting cash here the higher tax rate? I would think that the higher net income would equal higher cash, not lower cash.

Can someone please clear this up for me? Thanks!

[S2000magician]

@kpollar1

Hey guys - I need some help here. For some reason I am always thrown off by this type of question:

In a period of falling prices, the use of LIFO will result in in lower COGS (I get that), higher net income (makes sense), higher taxes (makes sense) and lower cash (this isnt clear to me)

Whenever I get these type of questions I always get confused how cash is affected with different inventory accounting methods. Is the only thing affecting cash here the higher tax rate? I would think that the higher net income would equal higher cash, not lower cash.

Can someone please clear this up for me? Thanks!

Lower cash _ after taxes _: you have to pay higher taxes.

The same cash flow (as FIFO or average cost) before taxes.

[kpollar1]

Thanks!

[S2000magician]

You’re welcome.