when preparing company financials for the lifo method the difference in costs in inventory between lifo and fifo is the lifo reserve therefore a company s lifo reserve fifo inventory lifo inventory lifo reserve is usually tracked so that companies using different methods of accounting can be accurately compared 
in order to ensure accuracy a lifo reserve is calculated at the time the lifo method was adopted the year to year changes in the balance within the lifo reserve can also give a rough representation of that particular year s inflation assuming the type of inventory has not changed accounting professionals have discouraged the use of the word reserve encouraging accountants to use other terms like revaluation to lifo excess of fifo over lifo cost or lifo allowance benefits of lifo reserveas stated one of the benefits of the lifo reserve is to allow investors and analysts to compare companies that use different accounting methods equally the most important benefit is that it allows a comparison between lifo and fifo and the ability to understand any differences including how taxes might be impacted this allows companies to better adjust their financial statements and budget in regards to sales costs taxes and profits 