Chapter 5: Accounting for Inventories and Cost of Good Sold

Very Short Question Answer| Accounting for Inventories

Also Read: Tax Accounting And Timing   accounting for inventories accounting for inventories accounting for inventories 

What is inventory?

An inventory is a merchandise of goods or other items owned by a firm and held for sale or for processing before being sold, as part of a firm’s ordinary operations.

What is cost of goods sold?

An inventory accounting, which determining the cost of merchandise that has been sold within a given accounting period, is referred as the cost of goods sold.

Define perpetual inventory system.

Perpetual inventory system is a continuous record of changes in inventory maintained in the inventory account. In this System, the movement of the stock is recorded continuously.

What do you mean by inventory error?

In the process of maintaining inventory records and the physical count of goods on hand, errors may occur by overstated or understated the value of inventory then the actual is inventory error. A general rule is that overstated of ending inventory cause overstates of income, while understates of ending inventory cause understates of income.

Write short notes on FIFO and LIFO.

FIFO: Under this method, it is assumed the oldest inventory i.e. the inventory first purchased is always sold first. Companies selling perishable goods such as foods and drugs, tend to use this method.

LIFO: Under this method, it is assumed that the most recent purchase is always sold first. Thus, the inventory that remains is always the oldest inventory and the company always sells or issues its newest inventory first.

Long Question Answer