Accounting Procedures Allow a Business to Evaluate Their Inventory Costs

question 57

Multiple Choice

Accounting procedures allow a business to evaluate their inventory costs based on two methods: LIFO (last in first out) or FIFO (first in first out) . A manufacturer evaluated its finished goods inventory (in $000s) for five products with the LIFO and FIFO methods. To analyze the difference,they computed FIFO − LIFO for each product. We would like to determine if the LIFO method results in a lower cost of inventory than the FIFO method. What are the degrees of freedom?

• A)4
• B)5
• C)15
• D)10

---

Definitions:

Postdated Check

A check written with a future date, preventing it from being cashed or deposited until that date.

Bank Reconciliation

The process of matching and comparing figures from the accounting records against those presented on a bank statement to ensure they are in agreement.

Deposit in Transit

Funds that have been deposited by a company in its bank account but have not yet been recorded by the bank, leading to a timing difference in the company's accounting records.

NSF Notation

A notation made by banks on a bounced check indicating "non-sufficient funds," meaning the account does not have enough money to cover the check.