Which statement is true?Multiple choice question.The inventory costing methods must mirror the physical flow of goods.Specific identification, weighted average cost, LIFO and FIFO are acceptable GAAP costing methods.The inventory costing methods reflect the amount paid for the purchases of inventory.
Question
Which statement is true?Multiple choice question.The inventory costing methods must mirror the physical flow of goods.Specific identification, weighted average cost, LIFO and FIFO are acceptable GAAP costing methods.The inventory costing methods reflect the amount paid for the purchases of inventory.
Solution
The true statement is: "Specific identification, weighted average cost, LIFO and FIFO are acceptable GAAP costing methods."
Here's why:
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"The inventory costing methods must mirror the physical flow of goods." - This statement is not necessarily true. The inventory costing method chosen by a company does not have to match the physical flow of goods. For example, a company could use the Last-In, First-Out (LIFO) method for cost accounting purposes, even if the actual physical flow of goods follows a First-In, First-Out (FIFO) pattern.
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"Specific identification, weighted average cost, LIFO and FIFO are acceptable GAAP costing methods." - This statement is true. All four of these methods are acceptable under Generally Accepted Accounting Principles (GAAP).
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"The inventory costing methods reflect the amount paid for the purchases of inventory." - This statement is not necessarily true. The inventory costing method chosen can impact the reported cost of goods sold and ending inventory, but it does not directly reflect the amount paid for inventory purchases. For example, if prices are rising, the LIFO method will result in a higher cost of goods sold and a lower ending inventory balance than the FIFO method.
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