Simple FIFO vs LIFO question

Why does FIFO have a higher Net income than LIFO in a inflationary environment? Wouldnt you think that since LIFO pays less taxes, than it would have a higher Net Income?


Because COGS is higher under LIFO when prices are rising. You pay less taxes because your taxable earnings are lower.

LIFO pays less taxes because there’s less income to tax, thus less net income

In LIFO there is a higher COGS as compared to FIFO so the Taxable income is lower in LIFO & hence after deducting the tax the net income is lower ,While the taxable income is higher in FIFO & after deducting the tax also the net income is higher in FIFO.

Hope this will help you…