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A company using the periodic inventory system must total the selling prices of the units on hand at the end of the period to value the ending inventory.

True
False

User Milktrader
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Final answer:

The statement is false because under the periodic inventory system, the ending inventory is valued based on the cost of units on hand, not the selling price. A physical count is done, and costs are applied using methods like FIFO, LIFO, or weighted average, instead of selling prices.

Step-by-step explanation:

The statement that a company using the periodic inventory system must total the selling prices of the units on hand at the end of the period to value the ending inventory is false. The periodic inventory system does not require the totaling of selling prices; instead, it requires the counting of physical inventory and valuing it at cost. The value of the ending inventory is determined by counting the units on hand and applying a cost valuation method such as FIFO, LIFO, or the weighted average cost. Although calculating large numbers of items at various prices can lead to complex totals as mentioned with index numbers, this calculation is required for creating financial statements and assessing the cost of goods sold.

When using the periodic inventory system, businesses generally perform a physical count at the end of an accounting period to determine the quantity of inventory available. Subsequently, this quantity is multiplied by the cost per unit, rather than the selling price, to arrive at the total value of ending inventory. It is therefore crucial to not confuse the cost of goods with their selling prices, as they serve different roles in accounting practices.

User FootsieNG
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