Final answer:
The FIFO accounting method helps reflect the current market value of inventory and may lead to higher ending inventory values and accounting profit during inflationary periods.
Step-by-step explanation:
The advantage of the First-In, First-Out (FIFO) accounting method is that it leaves the most recent costs in the cost of ending inventory, thus producing a better measure of the current market value of the inventory. By using FIFO during periods of inflation, the costs assigned to the ending inventory may more closely reflect the current replacement costs of those goods, assuming that prices have risen since the goods were purchased.
This practice can result in higher ending inventory values on the balance sheet and may also affect the cost of goods sold (COGS), leading to a higher reported accounting profit (total revenues minus explicit costs, including depreciation) as the older, lower costs are expensed first. However, it's important to consider that this can also result in higher taxable income.