What is a potential benefit of using LIFO in a period of rising prices?

Using the Last-In, First-Out (LIFO) inventory management method during a period of rising prices allows businesses to match their most recent costs with current revenues more accurately. As prices increase, the cost of goods sold (COGS) reflects these higher costs since the last items purchased are considered the first items sold. This results in a higher COGS, which directly reduces the company's taxable income because taxable income is calculated as revenue minus COGS. Therefore, adopting LIFO in times of rising prices typically leads to lower taxable income, which can be a strategic tax advantage for the business.

This method contrasts with others, such as FIFO (First-In, First-Out), where older, potentially lower costs remain in COGS during inflation, thus leading to higher taxable income.