Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

Why should managers be concerned about product overcosting or undercosting when using different inventory systems such as perpetual or periodic inventory?

Because it guarantees that inventory shrinkage will not occur.

Because it ensures that all products are always sold at the same price.

Because inaccurate costing can lead to poor pricing decisions and reduced profitability.

Because it eliminates the need for inventory counts at year-end.

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Verified step by step guidance

Understand the concept of product costing: Product costing involves assigning costs to products, which includes direct materials, direct labor, and overhead costs. Accurate costing is essential for determining the profitability of a product and making informed pricing decisions.

Recognize the impact of overcosting: Overcosting occurs when a product is assigned more costs than it actually incurs. This can lead to higher prices, potentially reducing demand and making the product less competitive in the market.

Recognize the impact of undercosting: Undercosting happens when a product is assigned fewer costs than it actually incurs. This can result in lower prices, which may lead to selling products at a loss and negatively impact profitability.

Understand the role of inventory systems: Perpetual and periodic inventory systems track inventory differently. Perpetual systems continuously update inventory records, while periodic systems update records at specific intervals. Inaccurate costing can arise if the chosen system does not properly account for inventory changes, such as shrinkage or obsolescence.

Connect inaccurate costing to decision-making: Managers must ensure accurate product costing to make informed pricing decisions, maintain profitability, and avoid financial losses. Poor costing practices can lead to mispricing, reduced competitiveness, and diminished financial performance.