What Is Lifo Reserve at Life

What Is Lifo Reserve. The lifo reserve is the difference between the cost of inventory calculated using the fifo method and using the lifo method. A 'lifo reserve' is the cumulative total of the profit difference between using lifo and if the company had been using fifo in that year.

It does not represent available cash, but the amount that past profits would be higher under a different accounting system. Normally more than inventory methods are used by companies. Lifo reserve refers to the difference between the reported lifo inventory carrying amount and the inventory amount that would have been reported if the fifo method had been used.

LIFO Inventory YouTube

In the form of an equation, The lifo reserve is an account used to reconcile the difference between the fifo and lifo methods of inventory valuation, when a business is using the fifo method as part of its accounting system but is using the lifo method to report in its financial statements. The difference between the inventory method used for internal reporting purposes and lifo is called lifo reserve or allowance to reduce inventory to lifo. Example of lifo reserve lifo also means that the older lower costs remain in inventory.