What is the LIFO reserve?

, also known as the last reserve in the first, is the LIFO reserve the difference between the first value of the first or FIFO inventory and the LIFO inventory value. This type of evaluation helps to measure the effect that has the use of the last output of the company's income owed. Ideally, using this approach leads to a kind of savings for society. In fact, if this approach does not result in the reduction of taxes owed from the value of the inventory, the number is recorded as a negative LIFO reservation in the company's main book.

Theoretically, the idea of ​​LIFO reserve is to arrange the division of goods from inventory in a way that helps legally minimize taxes that are evaluated in this inventory for each reporting period. This is achieved by comparing the goods sold during this period with goods that are last purchased and added to the inventory. The goods sold reduce the inventory value while adding ODS to this value. Strategic arrangement of purchases and sales onThe best advantage is created in accounting records and recorded a positive LIFO reserve.

While the LIFO accounting method is a common approach in many situations, companies can also use the first or FIFO accounting method. As the name suggests, there is a rapid turnover between what is paid from the inventory and what is purchased to add to the inventory. This method can also be effective in minimizing tax liability depending on how the tax laws that apply to the place in which the company operates.

LIFO Reserve is present when the inventory value is lower using the LIFO accounting method than it would be using the FIFO accounting method. This approach can be particularly effective during the period when prices for recently purchased Goods are rising. By charging those that have recently been purchased items with a higher price as the cost of sold goods and allowed goods that standLess in the inventory, taxes are rated in the inventory lower than if FIFO access was used. The final result is that higher costs are charged more in a profit and loss statement than in the balance sheet of the company, resulting in the use of a lower number for calculation of taxes that apply to the period. This also means that if recently purchased items are provided at lower prices and LIFO access is used, the LIFO reserve will be more negative than positive and will probably lead to an increase in the amount of taxes payable for the period.