Question: To illustrate, assume that the Mayberry Home Improvement Store starts the new year with four bathtubs (Model WET-5) in its inventory, costing $110 each ($440 in total) when bought on December 9 of the previous period. Perpetual averaging (also called moving averaging).Periodic averaging (also called weighted averaging).Therefore, companies normally choose one of six systems to monitor their merchandise balances and determine the cost assignment between ending inventory and cost of goods sold: ![]() That can occur thousands of times each day. In a perpetual system, each time a sale is made the cost flow assumption identifies the cost to be reclassified to cost of goods sold. For a periodic system, the cost flow assumption is only applied when the physical inventory count is taken and the cost of the ending inventory is determined. As noted, both of these systems have advantages and disadvantages.Ĭompanies also select a cost flow assumption to specify the cost that is transferred from inventory to cost of goods sold (and, hence, the cost that remains in the inventory T-account). In contrast, a perpetual system maintains an ongoing record of the goods that remain on hand and those that have been sold. Then, a formula (beginning inventory plus all purchase costs less ending inventory) is applied to derive cost of goods sold. If a periodic system is used, officials simply wait until financial statements are to be produced before taking a physical count. How does all of this material come together for reporting purposes? How does the application of a cost flow assumption impact the operation of a periodic or a perpetual inventory system?Īnswer: Each company that holds inventory must develop a mechanism to both (a) monitor the balances and (b) allow for the creation of financial statements. FIFO, LIFO, and averaging have now been presented. Question: In the previous chapter, periodic and perpetual inventory systems were introduced.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |