The Primary Basis of Accounting for Inventories Is Cost

question 20

Multiple Choice

The primary basis of accounting for inventories is cost.A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their

• A)selling price will be less than their replacement cost.
• B)replacement cost will be more than their net realizable value.
• C)cost will be less than their replacement cost.
• D)future utility will be less than their cost.

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Definitions:

Sales Refund Payable

A liability account representing the amount that a company expects to refund to customers for returned products.

Net Method

The net method is an accounting practice where purchase discounts are subtracted upfront from the cost of inventory, leading to the recording of purchases at their net cost if payment is made within a discount period.

Recording Purchases

The process of documenting transactions related to acquiring goods or services, essential for accurate financial reporting and inventory management.

Cash Discounts

These are deductions allowed by sellers on invoice amounts if the buyer pays promptly within a specified period, serving as an incentive for early payment.