Answer
1.LIFO layer: This comprises the cost of inventory that is applied under the LIFO approach; the costs vary through reporting periods.
2.LIFO reserve: This is all allowance that caters to the divergence between a method utilized in valuing inventory for the sake of making internal reports and the actual LIFO method. The allowance makes it possible for inventory to be reduced to the LIFO account.
3.LIFO effect: This denotes how the allowance for the LIFO reserve balance changes through reporting periods. The LIFO effect is adjusted in entities’ accounting records.
Work Step by Step
1.LIFO layer: This comprises the cost of inventory that is applied under the LIFO approach; the costs vary through reporting periods.
2.LIFO reserve: This is all allowance that caters to the divergence between a method utilized in valuing inventory for the sake of making internal reports and the actual LIFO method. The allowance makes it possible for inventory to be reduced to the LIFO account.
3.LIFO effect: This denotes how the allowance for the LIFO reserve balance changes through reporting periods. The LIFO effect is adjusted in entities’ accounting records.
