Question

Ie exercise 5-3 (algo): perpetual: inventory costing methods lo p1

Answer 1

Perpetual inventory costing methods involve continuously updating inventory records after each transaction, aiding in real-time tracking of inventory levels and cost of goods sold.

Step-by-step explanation:

Perpetual inventory costing methods, such as FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and weighted average, maintain an ongoing record of inventory levels and costs. FIFO assumes that the first items purchased are the first to be sold, reflecting current market prices for inventory valuation.

LIFO assumes the opposite, considering the latest items purchased as the first to be sold, impacting cost of goods sold during inflationary periods. Weighted average calculates the average cost of inventory after each purchase, providing a blended cost per unit.

These methods significantly impact financial statements. They affect the reported value of inventory on the balance sheet and influence the cost of goods sold on the income statement. The choice of method can impact tax obligations and profitability metrics. Companies select a method based on various factors like industry norms, tax implications, and management preferences.

Here is complete question;

"Ie exercise 5-3 (algo): perpetual inventory costing methods. LO P1. Provide a detailed explanation of the perpetual inventory costing methods and their significance in financial accounting."