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1 page/β‰ˆ275 words
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APA
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Accounting, Finance, SPSS
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English (U.S.)
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Topic:

Inventory Accounting

Essay Instructions:

After reading Greenberg and Wilner’s article, “Teaching Inventory Accounting: A Simple Learning Strategy to Achieve Student Understanding” (2011), found at: Greenberg, R. K. & Wilner, N.A. (2011). Teaching inventory accounting: A simple learning strategy to achieve student understanding . Issues in Accounting Education, 26(4): 835-844
Discuss why you think the authors’ statement below causes confusion among students in regard to understanding the differences among FIFO, LIFO, and average cost:
Students have a difficult time understanding the difference between the physical flow of inventory and the cost flow assumption. Specifically, they do not understand that the actual physical flow of goods relates to a process undertaken by a manufacturer or merchandiser, while the cost flow assumption relates to accounting reporting conventions. The physical flow does not have to be the same as the cost flow assumption(p.836).

Essay Sample Content Preview:

Inventory Accounting
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The inventory system in place determines how to calculate the cost of goods for all sales transactions in a company. As such, the allocation of costs to the cost of goods as well as the ending inventory typically follows the LIFO system in line with accepted accounting principles. The use of the FIFO, LIFO and average cost are related to the flow of cost approach. In other words, there is no direct relation between physical flow of the goods into the inventory, out to customers and the flow of unit costs.
One of the challenges in inventory accounting is to understand how the cost flow assumptions affect the cost in of goods sold and closing inventory. In essence, companies may make assumptions on the goods sold as well as inventory that remains in the business premises depending on the accounting methodologies. However, this is merely for tax purposes an...
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