The cost of ending inventory and the cost of goods sold are determined using various methods of them, the commonly used methods are: First in first out (FIFO), Last in first out (LIFO), and Weighted average.
Merchandise inventories are finished goods acquired for sale by retail or wholesale traders.
Inventory is an important barometer of business activity. The quantity of inventories and the time required to sell the goods on hand are two indicators to be watched carefully.
Without human intervention a machine which is more powerful, capable and complex in comparison to book keeping machine is used for data processing in a computer, is called mechanized accounting system.
Amount of money deducted from invoice price or amount receivable for sales is called discount.
Perpetual inventory system is named so because; from this system daily quantity of merchandise inventory can be known any time.
Periodical Inventory System determines cost of goods sold by adding merchandise purchase cost, beginning stock cost and deducting end-stock cost.
An effective internal control system includes organizational planning of a business and adopts all work-system and process to fulfill the organizational goals.
Inventory determining and counting generally becomes more accurate if goods are neither sold nor received during the period of inventory counting.
We apply the conservatism principle and use LCM to reduce inventory to a more realistic value and, at the same time, recognize the loss in value that has incurred.