When Following U

question 66

Essay

When following U.S. GAAP, firms can use two methods to write down inventory to market, if needed.
Required:
1. What are the two methods called?
2. If there is a loss, describe the journal entry for both methods.
3. If there is a significant loss, which method is preferred? Why is this the case?

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Definitions:

Raw Materials

Basic materials that are used in the production process of manufacturing goods, including metals, oil, grains, and other commodities.

Cash Discounts

Incentives offered by sellers to buyers for paying their invoices early, typically a percentage reduction in the invoice amount.

Cash Budget

A forecast of cash receipts and disbursements for the next planning period.

Pro Forma Statement

A financial statement based on hypothetical scenarios or assumptions, used for planning and decision-making purposes.