Inventory Systems and Cost Flow Assumptions: An Overview

BM5241 Business Accounting and Analytics

After the completion of this written assignment, you will be able to:1. Explain the inventory systems and cost flow assumptions used in a business. 2. Prepare a stock card in a perpetual inventory system using the First-in-First-Out (FIFO) or weighted average cost (WAC) cost flow assumptions. 3. Prepare an ageing schedule of accounts receivable, calculate the allowance for impairment of receivables and prepare the presentation of accounts receivable in the Statement of Financial Position. 4. Research using Internet to obtain financial and other information relevant to a selected company on its business activities and nature of business

Answer

Answers:

Inventory Systems: Inventory systems refer to the methods used by a business to keep track of its inventory levels. There are two main inventory systems: perpetual and periodic.

Perpetual Inventory System: In a perpetual inventory system, a business keeps a continuous record of inventory levels by updating its inventory accounts every time a transaction occurs, such as a purchase or sale. This provides real-time visibility into the inventory levels and helps to prevent stockouts and overstocking.

Periodic Inventory System: In a periodic inventory system, a business only updates its inventory accounts periodically, usually at the end of a reporting period. This system requires a physical count of inventory to determine the ending inventory level, which can be time-consuming and expensive.

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