Question

The following is an excerpt from a conversation between Evan Eberhard, the warehouse manager for Greenbriar Wholesale Co., and its accountant, Marty Hayes. Greenbriar operates a large regional warehouse that supplies produce and other grocery products to grocery stores in smaller communities. Evan: Marty, can you explain what’s going on her with these monthly statements? Marty: Sure, Evan. How can I help you? Evan: I don’t understand this last-in, first-out inventory procedure. It just doesn’t make sense. Marty: Well what it means is that we assume that the last goods receive are the first ones sold. So the inventory is made up of the items we purchase first. Evan: Yes, but that’s my problem. It doesn’t work that way! We always distribute the oldest produce first some of that procedure is perishable! We can’t keep any of it very long or it’ll spoil. Marty: Evan, you don’t understand. We only assume that the products we distribute are the last one received. We don’t actually have to distribute the goods in this way. Evan: I always thought that accounting was supposed to show what really happened. It all sounds like "make believe" to me! Why not report what really happens? Respond to evans concern.

Answer 1

Step-by-step explanation:

First in the FIFO scheme process is where the last inventory is used first in the case of production and then in the case of a sale. According to US GAAP, financial reporting accepts FIFOs only and the weighted average product assessment forms. Eventually in the first form, the product obtained last is not authorised first.

Consequently, Evan's questions about Marty's system of procurement are correct. In fact, according to accounting principles the procurement system used has to be identified. In order to make the financial statement true and fair, what is followed has to be revealed. Therefore LIFO and FIFO policy can not be claimed by Marty.