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(a)
(1)
Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.
Inventory cost flow: It refers to the flow (movement) of inventory when it is purchased or sell by the business organization.
The various inventory cost flow methods are:
- First-in, first-out (FIFO)
- Last in, first-out (LIFO)
- Average-cost
Specific identification method: In the identification method of inventory costing, business organization needs to record the each item of inventory at its actual cost.
Income Statement: The income statement is that financial statement which shows the net income (or loss) of the Company. In the income statement, to calculate the net income, all expenses incurred by the Company are deducted from the total revenue of the Company.
To determine: Partial income statement through gross profit and value of ending inventory reported in
(2)
FIFO method: In FIFO method, those goods are sold first which are purchased first by the business organization.
To determine: Partial income statement through gross profit and value of ending inventory reported in balance sheet under FIFO
(3)
LIFO method: In LIFO method, those goods are sold first which are purchased in last by the business organization.
To determine: Partial income statement through gross profit and value of ending inventory reported in balance sheet under LIFO.
(b)
The method used by companies to justify price increases and the method to support an argument to increase prices.
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Chapter 6 Solutions
Accounting Principles, Volume 1: Chapters 1 - 12
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