for inventory on B/S, LIFO reflect more historical price, FIFO more current price.
for COGS on I/S, LIFO reflect more current price, FIFO more historical price.
why when convert COGS(LIFO) to COGS(FIFO), it is COGS(LIFO)-change of LIFO reserve? I thought it sould add it on. Don't understand.作者: studyn 时间: 2011-7-13 13:44
Think it this way,
Assuming Prices r rising. COGS(FIFO) < COGS(LIFO) . and difference is change in LIFO reserve.作者: trogulj 时间: 2011-7-13 13:44
Reason for this is that FIFO cogs are understated bc based on earliest costs when they were initially bought so it makes intuitive sense that the difference in cogs between the two methods will be the amount you need to subtract from Lifo to come to the Fifo equivalent.
this messed me up too at first. COGS is an income statement item, which deals with changing revenues/expenses over time, so you need to find the CHANGE in LIFO reserve.
Versus balance sheet item would be a snapshot of one point in time so you wouldn't have to do the CHANGE.
