Exam 4 Flashcards
What does FIFO stand for in inventory management?
First In, First Out
What is the result of using FIFO during periods of rising prices?
Lower COGS and higher ending inventory
What financial impact does FIFO have on profits and taxes when prices are rising?
Higher profits and higher taxes
What does LIFO stand for in inventory management?
Last In, First Out
What is the result of using LIFO during periods of rising prices?
Higher COGS and lower ending inventory. Lower taxes though
What financial impact does LIFO have on profits and taxes during inflation?
Reduces taxable income and shows lower net income
Which inventory method is generally preferred for financial reporting?
FIFO
Which inventory method is often used for tax benefits?
LIFO
True or False: FIFO typically shows lower profits than LIFO during inflation.
False
Fill in the blank: In periods of inflation, LIFO provides a _______ by reporting lower net income.
tax advantage
Periodic Inventory System
Inventory and Cost of Goods sold are updated at the end of an accounting period.
Inventory is counted Physically, and purchases are recorded in a purchases account
Benefits of Periodic Inventory system
Less expensive to maintain, Cost of goods sold is only measured at the end of the period
Perpetual Inventory System
Inventory and Cost of goods sold is updated in real time with every sale or purchase
Benefits of Perpetual inventory system
More accurate, Allows for better inventory control and theft detection
What is a business’s most significant current asset?
Inventory
At what point does a purchase of inventory change from being an asset to becoming a part of COGS?
Once it is sold/purchased
