Chapter 6 Flashcards
FIFO
assume the flow of goods on paper not actual cash flow
-oldest items are the first to be sold
-ending inventory is the newest items purchased by the company
(periodic=perpetual)
LIFO
- assume the flow of goods on paper
- newest items purchased are the first to be sold
- Ending inventory is the oldest items
Weighted average
periodic does not equal moving average which is perpetual
specific identification
-reflects actual flow of goods
-
if a business uses LIFO for taxes what must is also do on for financial statement purposes
use LIFO
two external purposes
What type of expense is cost of goods sold?
non-cash expense
What provides the best matching on the income statement?
LIFO
-current costs expensed against current sales
What provides the most realistic balance sheet?
FIFO
current cost in the inventory
Discuss conservative constraint
requires that before finally valuing inventory for the balance sheet, we must compare the cost to the market. If cost drops below the market you must write down inventories. This procedure is called the lower cost of market.
What is comparability is increased due to what?
_LIFO reserve
Discuss LIFO reserve?
represents the difference between ending inventory using LIFO and ending inventory if FIFO were used instead
What is the purpose of the LIFO reserve?
used to make financial statements more comparable
Count usage for Periodic and Perpetual
- to determine COGS
- to determine shrinkage and adjust records to reflect that cost/expense
Discuss held on consignment and their relation to consignee?
not counted
What is the major difference between IFRS and GAAP as it relates to LIFO cost flow assumption?
GAAP permits the use of LIFO for inventory valuation
