Module 25.2: Inventory Systems

Question 1

What is a periodic system?

Answer 1

inventory values and COGS are determined at the end of the accounting period.

Question 2

What is a perpetual system?

Answer 2

inventory values and COGS are updated continuously.

Question 3

For FIFO and specific identification methods, ending inventory values under periodic or perpetual are the same.

True or False?

Answer 3

True

Question 4

When prices are falling or increasing, what cost flow method is the most useful measure of ending inventory?

Answer 4

FIFO.

Question 5

When prices are rising, will LIFO cogs be higher or lower than FIFO COGs. What about falling?

Answer 5

Rising - higher than FIFO

Falling - Lower than FIFO

Question 6

What cost flow method is the more useful measure for ending inventory? cost of goods sold?

Answer 6

FIFO best for ending inventory because the remaining product will be calculated using most recent prices.

LIFO best for cost of goods sold because the most recent product is being expensed to the income statement.