Which of the following is not a consideration that affects the selection of an inventory costing method?
Considerations that affect the selection of an inventory costing method do not include: perpetual versus periodic inventory system. Considerations that affect the selection of an inventory costing method do include: tax effects, balance sheet effects, income statement effects.
Which of the following is true of the FIFO inventory method?
Which of the following is true of the FIFO inventory method ? It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold. FIFO cost of goods sold will be the same as in a periodic inventory system .
Why would the physical count of inventory?
The physical count is used to adjust the Inventory account balance to the actual inventory available. The physical count is used to determine if there has been any theft, loss, damage or errors in inventory . Inventory items sold are considered part of cost of goods sold on the income statement.
Which one of the following methods is allowed under GAAP but not under IFRS?
Which one of the following methods is allowed under GAAP but not under IFRS ? LIFO is allowed under GAAP , but prohibited under IFRS .
Where is inventory reported in the financial statements?
Inventory is an asset and its ending balance is reported in the current asset section of a company’s balance sheet . Inventory is not an income statement account. However, the change in inventory is a component in the calculation of the Cost of Goods Sold, which is often presented on a company’s income statement .
What should be included in the physical inventory of a company?
Inventory should include all goods owned by the company regardless of whether the company holds physical possession or not.
Which of the following is a legitimate business reason for taking a physical inventory?
Terms in this set (57) Which of the following is a legitimate business reason for taking a physical inventory ? ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller. At December 31, Sunrise Company’s inventory records indicated a balance of $752,000.
What are the inventory costing methods?
The three main methods for inventory costing are First-in, First-Out ( FIFO ), Last-in, Last-Out ( LIFO ) and Average cost . Inventory valuation method.: The inventory valuation method a company chooses directly effects its financial statements.
What is the LIFO reserve?
The LIFO reserve is an account used to bridge the gap between FIFO and LIFO costs when a company uses the FIFO method to track its inventory but reports under the LIFO method in the preparation of its financial statements.
How do you Journalize physical count of inventory?
Enter a debit memo to your “Cost Of Goods Sold” account in the inventory amount and a credit to “Merchandise Inventory ,” if your physical count shows less than what is in the accounting records.
What are four methods used to assign costs to ending inventory and cost of goods sold?
There are four generally accepted methods for assigning costs to ending inventory and cost of goods sold : specific cost ; average cost ; first‐in, first‐out (FIFO); and last‐in, first‐out (LIFO).
How do you record inventory adjustments?
The first adjusting entry clears the inventory account’s beginning balance by debiting income summary and crediting inventory for an amount equal to the beginning inventory balance. The second adjusting entry debits inventory and credits income summary for the value of inventory at the end of the accounting period.
Is LIFO allowed under GAAP?
LIFO is prohibited under IFRS and ASPE. However, under the US Generally Accepted Accounting Principles ( GAAP ), it is permitted .
Why is LIFO allowed under GAAP?
Uniquely, GAAP standards originated when the SEC spurred the private sector to set standards for themselves. Clearly, companies had a stake in minimizing taxes, and some may even operate their inventories as LIFO . This explains why the business practice is allowed under GAAP .
Why LIFO is banned under IFRS?
IFRS prohibits LIFO due to potential distortions it may have on a company’s profitability and financial statements. For example, LIFO can understate a company’s earnings for the purposes of keeping taxable income low. It can also result in inventory valuations that are outdated and obsolete.