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Unformatted text preview: are as follows. Question 1: What does it mean to you when I suggest there is a difference between the cost assumption a particular company makes in valuing its inventory on the balance sheet and the physical flow of goods within the company? Answer: That a company purchases its inventory at different prices at different times for identical products. Therefore, the prices must be assumed and calculated for the balance sheet. However, the actually flow of goods may be different due to number of sales at certain prices, prices charged at different times, or sale promotions. Question 2: Does GAAP require companies to use the same inventory cost flow assumption for valuing inventory on the balance sheet as is represented by the physical flow of goods within the company? Answer: GAAP allows for 3 types of cost assumptions: First In-First Out, Last In-First Out, and an average cost of sales. Wendy Eller...
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- Fall '09
- Balance Sheet, total assets