Question

Cost of goods sold is credited for the amount of the decrease in the LIFO reserve. True or False

Answer 1

It is false that Cost of Goods Sold is credited for a decrease in the LIFO reserve. Cost of Goods Sold is debited when inventory is sold, and the LIFO reserve adjustment affects the reported inventory value, not directly the COGS account.

Step-by-step explanation:

The statement that Cost of Goods Sold (COGS) is credited for the amount of the decrease in the LIFO reserve is False. In accounting, the Cost of Goods Sold is an expense that increases when goods are sold and is debited when recording the sale of inventory. LIFO (Last-In, First-Out) reserve is an account used when a company is using LIFO method for inventory valuation but also wants to show what the inventory would have been using FIFO (First-In, First-Out) method. A decrease in the LIFO reserve means that the LIFO cost of inventory is closer to the FIFO cost, which suggests that COGS would be less if FIFO were used. However, this decrease is reported as an adjustment to the opening inventory balance of the period or as part of the calculation for the actual COGS for the period, rather than a direct credit to the COGS itself.

Answer 2

Cost of goods sold is not credited for the decrease in the LIFO reserve. The statement is false.

Step-by-step explanation:

False. Cost of goods sold is not credited for the amount of the decrease in the LIFO reserve.

LIFO Reserve is an accounting measure used to adjust the inventory value under the LIFO (Last-In, First-Out) method.

It represents the difference between the inventory amounts calculated under the LIFO method and those calculated using another inventory costing method such as FIFO (First-In, First-Out).

The decrease in LIFO reserve is recorded as a debit to Cost of Goods Sold and a credit to Retained Earnings. This allows the company to reflect the change in the value of its inventory and maintain accurate financial statements.