15 Lecture

1. What is the purpose of the perpetual inventory system? a) To physically count inventory at the end of a period b) To maintain a real-time record of inventory movements c) To determine the value of ending inventory d) None of the above

Answer: b) To maintain a real-time record of inventory movements

2. Which inventory valuation method assumes that the last inventory items purchased are the first to be sold? a) FIFO b) LIFO c) Weighted Average Cost d) None of the above

Answer: b) LIFO

3. How is the cost of goods sold calculated? a) Beginning inventory - ending inventory b) Ending inventory - beginning inventory c) Beginning inventory + purchases - ending inventory d) None of the above

Answer: c) Beginning inventory + purchases - ending inventory

4. Which inventory system involves physically counting inventory at the end of a specific period? a) Perpetual inventory system b) Periodic inventory system c) Weighted average cost system d) None of the above

Answer: b) Periodic inventory system

5. What is the purpose of the inventory turnover ratio? a) To measure how many times a business sells and replaces its inventory during a specific period b) To determine the value of ending inventory c) To calculate the cost of goods sold d) None of the above

Answer: a) To measure how many times a business sells and replaces its inventory during a specific period

6. Which inventory valuation method assumes that the first inventory items purchased are the first to be sold? a) FIFO b) LIFO c) Weighted Average Cost d) None of the above

Answer: a) FIFO

7. What is the difference between the perpetual inventory system and the periodic inventory system? a) The perpetual inventory system involves physically counting inventory, while the periodic inventory system maintains a real-time record of inventory movements b) The perpetual inventory system maintains a real-time record of inventory movements, while the periodic inventory system involves physically counting inventory c) Both systems involve physically counting inventory d) None of the above

Answer: b) The perpetual inventory system maintains a real-time record of inventory movements, while the periodic inventory system involves physically counting inventory

8. How is the value of ending inventory calculated using the LIFO method? a) Multiplying the number of units in ending inventory by the cost per unit of the most recent inventory purchases b) Dividing the total cost of goods available for sale by the total units available for sale c) Adding the beginning inventory to the purchases made during the period and subtracting the ending inventory d) None of the above

Answer: a) Multiplying the number of units in ending inventory by the cost per unit of the most recent inventory purchases

9. What is the purpose of the weighted average cost method? a) To assume that the first inventory items purchased are the first to be sold b) To calculate the average cost of inventory by dividing the total cost of goods available for sale by the total units available for sale c) To maintain a real-time record of inventory movements d) None of the above

Answer: b) To calculate the average cost of inventory by dividing the total cost of goods available for sale by the total units available for sale

10. Which inventory system is commonly used to record inventory movements in real-time? a) Perpetual inventory system b) Periodic inventory system c) Weighted average cost system d) None of the above

Answer: a) Perpetual inventory system

1. What is the perpetual inventory system, and how is it different from the periodic inventory system? Answer: The perpetual inventory system maintains a real-time record of inventory movements, while the periodic inventory system involves physically counting inventory at specific intervals.

2. Why is it important for businesses to keep accurate records of their inventory movements? Answer: Accurate inventory records enable businesses to make informed decisions regarding their inventory levels, reduce the risk of stockouts, and determine the cost of goods sold.

3. What is the inventory turnover ratio, and how is it calculated? Answer: The inventory turnover ratio measures how many times a business sells and replaces its inventory during a specific period. It is calculated by dividing the cost of goods sold by the average inventory level.

4. What is the difference between the FIFO and LIFO inventory valuation methods? Answer: FIFO assumes that the first inventory items purchased are the first to be sold, while LIFO assumes that the last inventory items purchased are the first to be sold.

5. How does the weighted average cost method work? Answer: The weighted average cost method calculates the average cost of inventory by dividing the total cost of goods available for sale by the total units available for sale.

6. How is the cost of goods sold calculated using the periodic inventory system? Answer: The cost of goods sold is calculated by adding the beginning inventory to the purchases made during the period and subtracting the ending inventory.

7. What is the impact of using different inventory valuation methods on a business's financial results? Answer: Different inventory valuation methods can have a significant impact on a business's financial results, such as its net income, taxes, and inventory levels.

8. What is the purpose of adjusting entries in the recording of stock? Answer: Adjusting entries are made to update the inventory accounts and adjust the financial statements to reflect the correct inventory levels and costs.

9. How does the LIFO method affect a business's taxes? Answer: The LIFO method can reduce a business's taxable income by assuming that the most recently purchased inventory items are the first to be sold.

10. What are the advantages and disadvantages of using the perpetual inventory system? Answer: The advantages of using the perpetual inventory system include real-time inventory tracking and more accurate cost of goods sold calculations. The disadvantages include higher costs and the need for accurate record-keeping.

Recording of stock is a critical aspect of inventory management that involves maintaining accurate records of inventory movements. The perpetual inventory system is a popular method for recording inventory movements that involves updating inventory records in real-time as goods are bought, sold, or transferred. This method provides businesses with a more accurate picture of their inventory levels and enables them to make informed decisions about replenishing stock. There are several inventory valuation methods used to determine the cost of goods sold, including FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and weighted average cost. Each method has its advantages and disadvantages and can have a significant impact on a business's financial statements. In the periodic inventory system, inventory is physically counted at specific intervals, and the cost of goods sold is calculated by adding the beginning inventory to the purchases made during the period and subtracting the ending inventory. This method is less accurate than the perpetual inventory system, but it can still provide businesses with a general idea of their inventory levels. Adjusting entries are necessary in the recording of stock to ensure that the inventory accounts are up to date and the financial statements reflect the correct inventory levels and costs. These entries are made at the end of an accounting period to adjust for any discrepancies in the inventory records. The inventory turnover ratio is a key metric used to measure how efficiently a business is managing its inventory. It measures how many times a business sells and replaces its inventory during a specific period. The ratio is calculated by dividing the cost of goods sold by the average inventory level. In conclusion, accurate recording of stock is essential for effective inventory management. It enables businesses to make informed decisions about inventory levels, reduce the risk of stockouts, and determine the cost of goods sold. Businesses must choose the appropriate inventory valuation method based on their needs and carefully manage their inventory to optimize their operations.