The difference between the inventory valuation as reported under LIFO and the amount that would have been reported under FIFO is called the Blank______.Multiple choice question.cost of goods soldgross profitFIFO reserveLIFO reserve
Question
The difference between the inventory valuation as reported under LIFO and the amount that would have been reported under FIFO is called the Blank______.Multiple choice question.cost of goods soldgross profitFIFO reserveLIFO reserve
Solution
To answer the question step by step:
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Understand the terms:
- LIFO (Last In, First Out): An inventory valuation method where the most recently produced items are recorded as sold first.
- FIFO (First In, First Out): An inventory valuation method where the oldest items are recorded as sold first.
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Identify what is being asked:
- The question is asking for the term that describes the difference between the inventory valuation under LIFO and FIFO.
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Analyze the options:
- Cost of goods sold: This refers to the direct costs attributable to the production of the goods sold by a company.
- Gross profit: This is the profit a company makes after deducting the costs associated with making and selling its products.
- FIFO reserve: This term is not commonly used in accounting.
- LIFO reserve: This is the term used to describe the difference between the inventory reported under LIFO and what it would have been under FIFO.
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Select the correct answer:
- The correct term is LIFO reserve.
So, the answer is: LIFO reserve.
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