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Chapter 6: 1RQ (page 357)

Which principle states that businesses should use the same accounting methods and procedures from period to period?

Short Answer

Expert verified

The principle of consistency governs to use of the same accounting methods and procedures from time to time.

Step by step solution

01

Accounting Principle

The accounting principle is the set of assumptions and conceptions that must be adhered to while preparing accounting records. These principles are the guidelines for the accounting process and govern the standards and rules.

02

Principle of Consistency

The principle of consistency is based on the notion that the business must use the same accounting method and assumptions from one period to another. This is because it helps the investors and lenders to compare the financial statements of the same company for different periods or the financial statements of different companies for the same period.

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Most popular questions from this chapter

What account is debited when recording the adjusting entry to write down merchandise inventory under the LCM rule?

Clarmont Resources, which uses the FIFO inventory costing method, has the following account balances at May 31, 2019, prior to releasing the financial statements for the year:

Merchandise Inventory, ending \( 13,500

Cost of Goods Sold 68,000

Net Sales Revenue 123,000

Clarmont has determined that the current replacement cost (current market value) of the May 31, 2019, ending merchandise inventory is \)12,400.

Requirements

1. Prepare any adjusting journal entry required from the information given.

Fit Gym began January with merchandise inventory of 78 crates of vitamins that cost a total of \(4,290. During the month, Fit Gym purchased and sold merchandise on account as follows:

Jan. 5 Purchase 156 crates @ \) 64 each

13 Sale 180 crates @ \( 100 each

18 Purchase 114 crates @ \) 75 each

26 Sale 150 crates @ $ 116 each

Requirements

4. If the business wanted to pay the least amount of income taxes possible, which method would it choose?

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

5. Compute gross profit for January using FIFO, LIFO, and weighted-average inventorycosting methods.

Some of L and K Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is\(32,000 below the business’s cost of the goods, which was \)98,000. Before any adjustmentsat the end of the period, the company’s Cost of Goods Sold account has a balanceof $410,000.

Requirements

2. At what amount should the company report merchandise inventory on the balancesheet?
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