Final answer:
The change in the Allowance to Reduce Inventory to LIFO balance from one period to the next is referred to as the LIFO Effect, which is an accounting adjustment that reflects how inventory costs are impacted by inflation or deflation under the LIFO inventory valuation method.
Step-by-step explanation:
The change in the Allowance to Reduce Inventory to LIFO balance from one period to the next is called the LIFO Effect. This term refers to the adjustment made in the accounting records to report inventory at the lower of cost or market, when using the Last-In, First-Out (LIFO) inventory valuation method. The LIFO effect is important because it represents the impact of inflation or deflation on the cost of inventory.
When prices are rising, the LIFO method generally results in higher cost of goods sold and a lower remaining inventory value on the balance sheet, which can lead to tax benefits. Conversely, during times of falling prices, the effect will be the opposite. The LIFO effect is recorded in a company's financial statements through an adjustment to the LIFO reserve, which is the account that represents the difference between the cost of inventory calculated using the LIFO method and the cost using the first-in, first-out (FIFO) method.