It can be assumed that the prices of inventory is increasing.
The LIFO method is an inventory system where the inventory purchased last is assumed to be the first to be sold. Ending inventory would be made up of inventories that were first purchased.
The FIFO inventory is an inventory system where the first purchased inventory is assumed to be the first to be sold. Ending inventory consists of inventory that was purchased last.
The LIFO reserve is the difference between the FIFO inventory and the LIFO inventory.
LIFO reserve = (FIFO inventory) - (LIFO inventory).
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