Final answer:
The Internal Revenue Service (IRS) determines the acceptability of inventory methods for tax purposes for a company, and businesses must comply with IRS regulations and use the selected method consistently unless permission for a change is granted.
Step-by-step explanation:
The acceptability of different inventory methods for tax purposes for a company is primarily determined by the Internal Revenue Service (IRS). Companies can use various inventory accounting methods such as First-In, First-Out (FIFO), Last-In, First-Out (LIFO), and the Average Cost Method, but the chosen method must comply with IRS regulations and be consistently applied. For financial reporting purposes, inventory methods must also align with the Generally Accepted Accounting Principles (GAAP) in the United States, but for tax reporting, IRS approval is crucial.
Businesses typically select the inventory method that most favorably affects their financial statements and tax liabilities; however, once a method is selected and used for tax reporting, the company must continue to use that method in future years unless it obtains permission from the IRS to make a change.