LIFO Reserve and COGS

Hello everyone, I understand why we add back the LIFO reserve to inventory to get the FIFO inventory. Now my question is why do we deduct only the INCREASE/DECREASE in the LIFE reserve to Cost of Goods Sold? Why not deducting the LIFO reserve entirely as we did for the inventory? That’s probably a silly question but my mind cannot make the link… THanks a lot. I hope I was clear enough.

The idea when adjusting LIFO to FIFO is that you’re trying to replicate what would have happened had you been using FIFO all along. So . . . the entire LIFO reserve would have accumulated in inventory & COGS over the years, but in the last year only the last bit of the LIFO reserve would have gone into inventory & COGS.

Not getting into too much detail but Inventory is a BS function and COGs is an IS function.

IS = BS change from one period to the next (very simply stated)

so it makes sense that COGs differences would be the difference in one of the key variables, which happens to be the reserve.

Thanks to both of you!!! S2000 magician sorry to ask but do you answer questions full time? Is that your job? I mean 9months ago when I was taking LVL1 you were helping me too.

My pleasure. I liked Galli’s explanation: good stuff.

Sometimes it seems that way.

Nope, just my hobby.

It seems to have worked, too!

ahah ok :slight_smile: Thx for your help then.