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One thing I never gained a full understanding for during my level II prep last year was LIFO reserve.
Correct me if I'm wrong but the LIFO reserve is the extra amount of ending inventory that a company would report if they used the FIFO inventory valuation method instead of LIFO. In other words, the LIFO Reserve = FIFO Ending Inventory - LIFO Ending Inventory. So in order to adjust a LIFO company's inventory to FIFO, one simply has to add the LIFO reserve to inventory.
Now what I memorized, but never understood, was why you add the change in the LIFO reserve to COGS to convert LIFO COGS to FIFO COGS.
Can anyone explain?