LIFO Reserve (LIFO Effect)

This video discusses the LIFO Reserve, also known as the LIFO effect. Some firms keep two sets of books, using FIFO to value inventory for internal reporting (used by managers) and FIFO to value inventory for external reporting (to prepare financial statements). In periods of rising prices FIFO results in higher inventory, so these firms must record an adjusting journal entry to reduce inventory to a LIFO basis. This video provides an example to show this LIFO Reserve is recorded.
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