Question

inventory costing methods ($ in thousands). fifo average cost lifo pre-2023 $ 2,860 $ 2,600 $ 2,340 2023 780 570 555 $ 3,640 $ 3,170 $ 2,895 required: 1. assume that roberti steel company used fifo before 2024, and then in 2024 decided to switch to average cost. prepare the journal entry to record the change in accounting principle

Answer 1

To record the change in accounting principle from FIFO to average cost, the company needs to make a journal entry. Debit the difference in inventory value, and credit the difference in retained earnings.

Step-by-step explanation:

To record the change in accounting principle from FIFO to average cost, the company needs to make a journal entry. This entry will reflect the adjustment in the inventory value and the change in retained earnings. Here is the journal entry:

• Debit: Inventory (increase by the difference between FIFO and average cost)
• Credit: Retained Earnings (decrease by the difference between FIFO and average cost)

For example, if the FIFO inventory value is $3,640, and the average cost inventory value is $3,170, the difference would be $470 ($3,640 - $3,170). Therefore, the journal entry would be:

• Debit: Inventory ($470)
• Credit: Retained Earnings ($470)