Final answer:
Under the LIFO method, the latest inventory costs are accounted for in the cost of goods sold. This can affect financial reporting and tax obligations, particularly in times of inflation.
Step-by-step explanation:
Under the Last-In, First-Out (LIFO) inventory costing method, the last costs into inventory go immediately to the cost of goods sold (COGS). This accounting principle is predicated on the assumption that the most recently acquired items are the first to be sold.
In periods of rising prices, using LIFO can result in higher COGS on the income statement, lower ending inventory valuations on the balance sheet, and could potentially lead to tax benefits due to the higher reported expense. Ultimately, LIFO affects the company's financial reports and tax liabilities.