The reduction in inventory quantities resulting in the removal of older layers of costs. With continuously higher costs, the older layers are likely to be low costs under LIFO. Removing these old, low costs will cause an increase in profits and in taxable income. Therefore, it is important to be intentionally removing low costs since this is likely to create an income tax payment that could have been avoided by not liquidating the old costs. If the liquidation of LIFO layers results in a significant increase in net income, this should be disclosed.
Featured Review
"I am currently a returning adult student studying business and accounting. My Intro to Accounting professor recommended AccountingCoach, and it has been invaluable. I opted to become a PRO user because I knew it would serve me well, not only throughout my schooling but in my career as well. The certificates, flashcards, and practice quizzes are a great way to master and maintain accounting concepts. The site is very user friendly and has all the information I could ever need. A fantastic resource!" - Renee S.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviewsWe now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: