LIFO vs. FIFO Question part, thread, understand, difference, different

leadcfa

Hello,
I am confused on one part of LIFO vs. FIFO and was hoping for a little help! Part of my question has been addressed in a different thread, but it was focused on a different part of the problem so didn’t really shed any light on the situation.
When converting from LIFO to FIFO, I understand clearly that the FIFO inventory is the LIFO inventory plus the LIFO reserve. That makes perfect sense. However, when converting LIFO C.O.G.S. to FIFO C.O.G.S., you simply add the difference between LIFO reserve from the current and previous year. I can’t seem to wrap my head around that. Any help would be greatly appreciated!

Kingpin804

Heh. I’m the same way. But I think it’s necessary to memorize certain things for the purpose of this exam.
The intuitive explanation is that COGS and inventory balance have an inverse relation. In increase in LIFO reserve means rising prices, so FIFO inventory is adjusted by more. For the same reason, the increase in LIFO reserve is subtracted from COGS.