Questions: When inventory costs are rising, an advantage for companies using LIFO is

The answer is that LIFO (Last-In, First-Out) can result in lower taxable income.

When inventory costs are rising, companies using the LIFO method can benefit from the following:

Under LIFO, the most recently acquired inventory, which is more expensive due to rising costs, is considered sold first. This results in higher cost of goods sold (COGS) and, consequently, lower taxable income. Lower taxable income can lead to tax savings, which is a significant advantage for companies.

By reducing taxable income, companies can defer tax payments, thereby improving cash flow. This can be particularly beneficial in times of inflation or when inventory costs are increasing.

LIFO provides a better match of current costs with current revenues, as the cost of goods sold reflects the most recent prices. This can provide a more accurate picture of a company's profitability in an inflationary environment.

In summary, the primary advantage of using LIFO when inventory costs are rising is the potential for lower taxable income, which can lead to tax savings and improved cash flow.