Ok, so I’ve seen people say that the key to L1 is to “make sense” of the topics and not necessarily memorize ever formula. I can see how one benefits from this, because if you understand the concept it’s very likely that you can come up with the formula. Now, with that said, is there some intuitive point of LIFO to FIFO and COGS LIFO to COGS FIFO that I’m completly missing? Are these (i.e. GOGS FIFO = [COGS LIFO] - [Change in LOFO reserve]) just some of the fomulas we should commit to memory? Thanks!
one way to remember this is notice that LIFO COGS is larger than FIFO COGS, assuming rising prices which is the normal case. Therefore, to derive FIFO COGS you clearly need to deduct something from LIFO COGS, but what do you deduct? You would deduct the difference due to using LIFO for inventory valuation. That is, you would deduct the difference between FIFO ending inventory and LIFO ending inventory. When you do that, you will have taken out the LIFO effect and you will have COGS numbers in FIFO terms.
also one way to remember that COGS formula deals with change and inventory calculation is simply + LIFO reserve is that COGS is a income statement item and and Inventory is a balance sheet item. So the the time periods are different the 2 items.