simple question that i can’t wrap my head around… thus needs explanation please… “To convert LIFO COGS to FIFO COGS, subtract the increase in LIFO reserve over the period fro LIFO COGS”. Question: Why?

First, u may need to undertstand what is LIFO reserve? It shows the difference between the value of the inventory under LIFO and FIFO. By subtracting the change in LIFO reserve, it would eliminate the LIFO effect for the particular year.

COGS = BI + P – EI Purchase are not effected by accounting method P = COGS (LIFO) + EI (LIFO) – BI (LIFO)…….EQUATION 1 P = COGS (FIFO) + EI (FIFO) – BI (FIFO)………EQUATION 2 Equating the equation 1 and 2 we get COGS (L) + EI (L) – BI (L) = COGS (F) + EI (F) –BI (F) COGS (F) = COGS (L) + EI (L) – BI (L) – EL (F) + BI (F) COGS (F) = COGS (L) – [{EI (F) – EI (L)} – {BI (F) –BI (L)}} COGS (F) = COGS (L) – [LIFO Reserve (E) – LIFO Reserve (B)] where E in ending inventory and B is beginning inventory