True Or False Quiz Inventory Costing Methods Under A Perpetual Inventory System

1. Average cost method is rarely used in a perpetual inventory system

True

False

The average cost method is rarely used in a perpetual inventory system because it requires recalculating the average cost of inventory after every purchase or sale. In a perpetual inventory system, inventory levels are continuously updated in real-time, making it more efficient to use other methods such as the FIFO (First-In, First-Out) or LIFO (Last-In, First-Out) methods. These methods are simpler to implement and provide a more accurate representation of the cost of goods sold and the value of remaining inventory. Therefore, the average cost method is not commonly used in a perpetual inventory system.

Explanation

The average cost method is rarely used in a perpetual inventory system because it requires recalculating the average cost of inventory after every purchase or sale. In a perpetual inventory system, inventory levels are continuously updated in real-time, making it more efficient to use other methods such as the FIFO (First-In, First-Out) or LIFO (Last-In, First-Out) methods. These methods are simpler to implement and provide a more accurate representation of the cost of goods sold and the value of remaining inventory. Therefore, the average cost method is not commonly used in a perpetual inventory system.

2. Using lifo, the cost of units sold is the cost of the most recent purchases.

True

False

The statement is true because under the LIFO (Last In, First Out) method of inventory valuation, the cost of units sold is based on the most recent purchases. This means that when calculating the cost of goods sold, the cost of the most recently acquired inventory is used first, resulting in a higher cost of goods sold and lower net income. This method assumes that the most recently purchased items are the first ones to be sold, which is why it is called Last In, First Out.

Explanation

The statement is true because under the LIFO (Last In, First Out) method of inventory valuation, the cost of units sold is based on the most recent purchases. This means that when calculating the cost of goods sold, the cost of the most recently acquired inventory is used first, resulting in a higher cost of goods sold and lower net income. This method assumes that the most recently purchased items are the first ones to be sold, which is why it is called Last In, First Out.

3. Using fifo, costs are included in the merchandise sold in the order in which they were incurred

False

True

The explanation for the given correct answer is that FIFO (First-In, First-Out) is an inventory costing method where the costs of the earliest acquired or produced items are assigned to the items sold first. This means that the costs incurred for purchasing or producing the merchandise are included in the cost of goods sold in the order in which they were incurred. Therefore, the statement that "Using FIFO, costs are included in the merchandise sold in the order in which they were incurred" is true.

Explanation

The explanation for the given correct answer is that FIFO (First-In, First-Out) is an inventory costing method where the costs of the earliest acquired or produced items are assigned to the items sold first. This means that the costs incurred for purchasing or producing the merchandise are included in the cost of goods sold in the order in which they were incurred. Therefore, the statement that "Using FIFO, costs are included in the merchandise sold in the order in which they were incurred" is true.

4. No entry is made at the time of a sale to the Cost of Goods Sold Account or the Inventory Account when the Perpetual Inventory Method is used.

True

False

In the Perpetual Inventory Method, entries are made at the time of a sale to both the Cost of Goods Sold Account and the Inventory Account. This method involves continuously updating the inventory records to reflect changes in stock levels and cost of goods sold. Therefore, the statement that no entry is made at the time of a sale to these accounts is false.

Explanation

In the Perpetual Inventory Method, entries are made at the time of a sale to both the Cost of Goods Sold Account and the Inventory Account. This method involves continuously updating the inventory records to reflect changes in stock levels and cost of goods sold. Therefore, the statement that no entry is made at the time of a sale to these accounts is false.

5. The merchandise inventory account at the beginningof an accounting period indicates the merchandise in stock on that date. Purchases are recorded by debiting Cash or Accounts Payable and crediting Merchandise Inventory

True

False

The given statement is false. Purchases are not recorded by debiting Cash or Accounts Payable and crediting Merchandise Inventory. Instead, purchases are recorded by debiting Merchandise Inventory and crediting Accounts Payable or Cash.

Explanation

The given statement is false. Purchases are not recorded by debiting Cash or Accounts Payable and crediting Merchandise Inventory. Instead, purchases are recorded by debiting Merchandise Inventory and crediting Accounts Payable or Cash.