Mission Statement
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Accounting: The Language of Business - Vol. 2 (Intermediate: Part 163)
Know well the condition of your flocks, and give attention to your herds,
Short-Term Operating Assets: Inventory (Part I)
by
Charles Lamson
First-In, First-Out Method
The first-in, first-out (FIFO) method assigns the most recent costs to ending inventory and the oldest cost to cost of goods sold. Under a perpetual system (a computerized system that continuously tracks and records inventory levels in real time), the company records the cost of goods sold at the point of each sale. FIFO is conceptually sound for firms selling products that can perish or are subject to style changes, obsolescence, or rapid technological changes. The FIFO cost-flow assumption accurately portrays the actual flow of goods in most companies. For example, it is logical that a computer manufacturer will attempt to sell its oldest models first because they will certainly be replaced by units with more advanced technology. Example 10.8 illustrates the FIFO method. *GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 521-523* end |
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Accounting: The Language of Business - Vol. 2 (Intermediate: Part 162)
Short-Term Operating Assets: Inventory (Part H)
by
Charles Lamson
Moving-Average Method
The moving-average method determines an average cost for the units on hand and applies that average unit cost to the next sale to determine the cost of goods sold. The term moving-average method, is used in a perpetual inventory system (a computerized system that tracks inventory changes in real time, eliminating the need for physical inventory counts). Under a periodic inventory system (an accounting method that involves physically counting inventory at set intervals, such as quarterly, semi-annually, or annually), this approach is generally referred to as the weighted-average method. The ending inventory is the remaining (unsold) units valued at the average unit cost as shown in Example 10.7. The moving average method is useful for firms selling a high value of a homogeneous product (e.g., oil and gas) and is often used for inventory of raw materials and supplies. *GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 519-521* end |
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Measurement Methods by Charles Lamson There are two major measurement methods: counting and judging. While counting is preferre...
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Product Life Cycles by Charles Lamson Marketers theorize that just as humans pass through stages in life from infancy to death,...