Chapter 6 Accounting for Merchandising Businesses--Advanced Topics

Chapter 6 Accounting for Merchandising Businesses--Advanced Topics

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Chapter Six Accounting for Merchandising Businesses—Advanced Topics Inventory Cost Flow Methods - Methods used to allocate the cost of goods available for sale between cost of goods sold and inventory. 1. Specific Identification 2. First-In, First-Out (FIFO) 3. Last-In, First-Out (LIFO) 4. Weighted Average Specific Identification – Inventory method that allocates cost between cost of goods sold and ending inventory using the cost of the specific goods sold or retained in the business. Not practical when a company’s inventory consists of many low-priced, high turnover goods. First-In, First-Out – Inventory cost flow method that treats the fist items purchased as the first items sold for the purpose of computing the cost of goods sold. FIFO requires the largest cash payment for income taxes. Last-In, First-Out – Inventory cost flow method that treats the last items purchased as the first items sold for the purpose of computing cost of goods sold. LIFO requires the lowest cash payment for income taxes. Weighted Average –
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Chapter 6 Accounting for Merchandising Businesses--Advanced Topics

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