If Inventory Is a Material Amount,what Method of Accounting Is

question 19

Multiple Choice

If inventory is a material amount,what method of accounting is acceptable for a sole proprietorship to use?

• A)The cash method.
• B)Accrual method.
• C)Hybrid method.
• D)Both Accrual method and Hybrid method.

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Definitions:

Goodwill

An intangible asset that arises when a buyer acquires an existing business and pays more than the fair value of the identifiable net assets.

Equity Method

This accounting approach is used to assess the contribution of investments in other entities to the investor's financial health, altering the investment's value on the balance sheet based on the investor's share of the entities' net assets.

Retained Earnings

The portion of a company's profits not distributed as dividends to shareholders but retained by the company for reinvestment in its operations or to pay debt.

FIFO System

First-In, First-Out, an inventory valuation method where goods first added to inventory are the first ones to be sold.