Typically, the impact of the "LIFO reserve" is to
A)increase cost of goods sold and decrease ending inventory
B)decrease cost of goods sold and decrease ending inventory
C)increase cost of goods sold and increase ending inventory
D)have no effect on cost of goods sold and ending inventory

Question

Quizplus · Accepted Answer

LIFO reserve refers to the difference between the cost of inventory under LIFO and the cost of the same inventory under FIFO. LIFO reserve is a contra inventory account that is added to the LIFO inventory balance to arrive at the FIFO inventory balance. The impact of the LIFO reserve is to increase the cost of goods sold (because LIFO assumes that the most recent inventory purchases are the first ones sold, which usually have higher costs) and decrease ending inventory (because the LIFO method assumes that the oldest inventory items are still available for sale). Therefore, the best choice is A.

Typically, the Impact of the "LIFO Reserve" Is to