Which method mimics the actual flow of inventory for most businesses?
Answer 1. Mimics the actual flow of inventory for most businesses. Answer = FIFO Method. This is because for both businesses, products are sold in the series they were purchased or produced, that is, first produced or purchased ar … View the full answer
Do companies that use a perpetual inventory system do a physical count?
Companies that use a perpetual inventory system never need to do a physical count of inventory because in a perpetual system cost of goods sold and inventory are kept up-to-date every time a sale is recorded. T/F If the year 1 ending inventory balance is overstated, then the year 2 beginning inventory balance will be __________.
When is an increase in inventory balance desirable?
2) an increase inventory balance is desirable if management is building up stock in anticipation of higher sales. 2) an increase inventory balance is desirable if management is building up stock in anticipation of higher sales.
What is meant by specific inventory identification?
Specific identification is an inventory method typically used when accounting for expensive and unique inventory items. T/F Which of the following statements concerning inventory is correct? The inventory turnover ratio directly measures ______________.
Does FIFO coincides with the actual physical flow of inventory?
a. FIFO seldom coincides with the actual physical flow of inventory.
Which inventory method is most accurate?
Specific identification is the most accurate inventory accounting method. It tracks the cost of each item in your inventory and the actual price of each item that sold.
What matches actual flow of goods with actual flow of costs in most cases?
CardsTerm Specific IdentificationDefinition žCosts assigned to inventory item when sold is the actual cost paid for item žCost flow through accounting records exactly matches physical flow of goodsTerm Benefit From LIFODefinition Minimizes net income and income taxes; reduces cash paid for taxes64 more rows•Oct 25, 2010
What is the other method of inventory?
There are three methods for inventory valuation: FIFO (First In, First Out), LIFO (Last In, First Out), and WAC (Weighted Average Cost).
What are the 4 inventory methods?
The four main ways to account for inventory are the specific identification, first in first out, last in first out, and weighted average methods.
What is LIFO and FIFO method?
Key Takeaways. The Last-In, First-Out (LIFO) method assumes that the last unit to arrive in inventory or more recent is sold first. The First-In, First-Out (FIFO) method assumes that the oldest unit of inventory is the sold first.
Which cost formula matches the actual physical flow of merchandise?
Both inventory and net income are higher when companies use FIFO in a period of inflation. LIFO results in the lowest income taxes (because of lower net income) during times of rising prices. The cost flow method that often parallels the actual physical flow of merchandise is the: A: FIFO method.
Which inventory method most closely matches the physical flow of perishables?
FIFO leaves in ending inventory the last, most recent costs incurred. The cost flow of the goods through the accounting records will closely match the physical flow of goods through the business for most goods.
What is the difference between FIFO LIFO and weighted average?
Key Difference – FIFO vs Weighted Average The key difference between FIFO and weighted average is that FIFO is an inventory valuation method where the first purchased goods are sold first whereas weighted average method uses the average inventory levels to calculate inventory value.
What are two methods of inventory control?
In general, there are two methods of inventory control: manual and perpetual.
What is perpetual inventory system?
A perpetual inventory system is a program that continuously estimates your inventory based on your electronic records, not a physical inventory. This system starts with the baseline from a physical count and updates based on purchases made in and shipments made out.
What is inventory cost flow method?
The inventory cost flow assumption states that the cost of an inventory item changes from when it is acquired or built and when it is sold. Because of this cost differential, management needs a formal system for assigning costs to inventory as they transition to sellable goods.
What is the best accounting method for inventory?
1) Managers can choose the method of accounting for inventory cost that best fits their business. 2) GAAP require that all companies in the same industry use the same method of accounting for inventory. 3) using a different inventory accounting method leads to reporting a different amount for cost of goods sold.
Why is an increase in inventory balance desirable?
2) an increase inventory balance is desirable if management is building up stock in anticipation of higher sales.
Do companies need to do inventory?
Companies that use a perpetual inventory system never need to do a physical count of inventory because in a perpetual system cost of goods sold and inventory are kept up-to-date every time a sale is recorded. T/F
What are the four methods used to assign cost to inventory?
Each method assumes a particular pattern for how costs flow through inventory. 1. First-in, first-out (FIFO). 2. Last-in, first-out (LIFO). 3. Weighted Average. 4. Specific identification
What is the cost of inventory?
The cost of an inventory item includes its invoice cost minus any discount, plus any incidental costs (such as import duties, freight, storage, insurance, etc...)
What happens when inventory is overstated?
3. If ending inventory is overstated, cost of goods sold is understated and net income if overstated
What is FIFO in accounting?
1. FIFO assigns the lowest amount to cost of goods sold resulting in the highest gross profit and the highest net income. ADVANTAGE: Inventory on the balance sheet approximates its current replacement cost; it also mimics the actual flow of goods for most businesses.
Which assigns the highest amount to cost of goods sold resulting in the lowest gross profit and the lowest net income?
2. LIFO assigns the highest amount to cost of goods sold resulting in the lowest gross profit and the lowest net income. ADVANTAGE: Better match of current costs with revenues in computing gross margin.
When should inventory costs be recorded?
States that inventory costs should be recorded against revenue in the period when inventory is sold. Used to decide how much of the cost of goods available for sale is deducted from sales (on the income statement) and how much is carried forward as inventory (on the balance sheet)
Does inventory cost affect income?
Since inventory costs affect net income, they have potential tax effects. Financial reporting often differs from the method used for tax reporting. EXCEPTION: LIFO may only be used for tax purposes if it is also used for financial reporting
What is the consistency concept of inventory valuation?
consistency concept. Prescribes that the notes to the financial statements report the change from one inventory valuation method to another.
What is a company's goods?
All goods owned by a company and held for sale.
