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Chapter 6: 1SE (page 358)

Determining inventory accounting principles

Ward Hardware used the FIFO inventory costing method in 2018. Ward plans to continue using the FIFO method in future years. Which accounting principle is most relevant to Ward’s decision?

Short Answer

Expert verified

The principle of consistency has been used in the given case.

Step by step solution

01

Accounting principle

The accounting principle is the concept and the notion that is assumed to be followed while preparing the accounting records. All the accounting standards are based on accounting principles

02

Accounting principle in the given case

In the given case, the most relevant accounting principle that has been used is the principle of consistency.

As per this principle, there should be uniformity and consistency in the accounting method and procedures that have been used in maintaining the books of accounts.

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Most popular questions from this chapter

Question:New York Pool Supplies’s merchandise inventory data for the year ended December 31, 2019, follow:

Net Sales Revenue\( 58,000

Cost of Goods Sold:

Beginning Merchandise Inventory\) 4,900

Net Cost of Purchases 32,500

Cost of Goods Available for Sale37,400

Less: Ending Merchandise Inventory 4,700

Cost of Goods Sold32,700

Gross Profit \( 25,300

Requirements

1. Assume that the ending merchandise inventory was accidentally overstated by\)1,800. What are the correct amounts for cost of goods sold and gross profit?

Question:Assume that Toys Galore store bought and sold a line of dolls during December as follows:

Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each

8 Sale 8 units @ \) 22 each

14 Purchase 16 units @ \( 14 each

21 Sale 14 units @ \) 22 each

Requirements

5. Which method results in a higher gross profit?

When using the periodic inventory system, which inventory costing method(s) always produces the same result as when using the perpetual inventory system?

Question:New York Pool Supplies’s merchandise inventory data for the year ended December 31, 2019, follow:

Net Sales Revenue\( 58,000

Cost of Goods Sold:

Beginning Merchandise Inventory\) 4,900

Net Cost of Purchases 32,500

Cost of Goods Available for Sale37,400

Less: Ending Merchandise Inventory 4,700

Cost of Goods Sold32,700

Gross Profit $ 25,300

Requirements

2. How would the inventory error affect New York Pool Supplies’s cost of goodssold and gross profit for the year ended December 31, 2020, if the error is not correctedin 2019?

How is inventory turnover calculated, and what does it measure?
See all solutions

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