ACC 281 Week 1 DQ3 - 7413

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What are the different inventory cost flow assumptions? How does a company determine what cost flow assumption they must use? How might the choice of cost flow assumptions affect the company's cost of goods sold and ending inventory balance? What are the different inventory cost flow assumptions? There are three assumed cost flow methods the first-in, first-out (FIFO), Last-in, first-out (LIFO), and the average-cost method. How does a company determine what cost flow assumption they must use? Because there are no accounting requirements that assumptions be consistent with the physical movement of goods, companies select the most appropriate method by income statement effects, balance sheet effects, or tax effects. How might the choice of cost flow assumptions affect the company's cost of goods sold and ending inventory balance? The cost of goods sold and ending inventory balances are affected by a company's cost flow assumptions because the allocated unit costs differ from company to company. In periods of changing prices such as inflation have an effect on each cost flow assumption which results in different balances of cost of goods sold and ending inventories. Each dollar of difference in ending inventory results in a corresponding dollar difference in income before income taxes.

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What are the different inventory cost flow assumptions? How does a company determine what cost flow assumption they must use? How might the choice of cost flow assumptions affect the company's cost of goods sold and ending inventory balance? What are the diff