Question

You must label each answer with the number of question. Each question must have at least three sentence answers. There is no maximum sentence, use as many as you wish to thoroughly answer the question. All answers must be complete sentences using proper grammar and spelling.

Assume you are opening a furniture store. You have some decisions about how to do the accounting for the business.

1. Which type of inventory system will you use? Explain your reasons.

   • specific, LIFO, FIFO, or weighted average?

   • perpetual or periodic?

2. How often do you plan to do a physical count of inventory on hand? Explain your reason.

3. Inventory costs are rising. Which inventory costing method would have the effect of maximizing net income?

4. Inventory costs are rising. Which inventory costing method would have the effect of minimizing the amount of income tax?

5. What do you think will be the biggest accounting issues you will encounter with running your business?

Answer 1

Which type of inventory system will you use? Explain your reasons

ANSWER:- As it is a furniture store so i will use a FIFO(First in First Out) method for purpose of inventory accounting because if the product which was purchased firstly doesn't sale at first place there will a risk of Termite to spoil the furniture.

specific, LIFO, FIFO, or weighted average?

ANSWER:-

LIFO- Last in First Out describes a method of accounting for inventories. Under this system, the last unit added to an inventory is the first to be recorded as sold.

FIFO- First In First Out is an inventory accounting method that suggests the first items placed in inventory are the first to sold.

Weighted Average - Weighted Average is method in which each unit of the inventory of the particular type is similar and can be sold for the same price.

perpetual or periodic?

ANSWER:- I will choose the perpetual method for the purpose of recording inventory . It is method in which inventory is record at it enter in premises . In today's business every accounting is done on computer so it is easy to follow the perpetual method.

How often do you plan to do a physical count of inventory on hand? Explain your reason

ANSWER:- I will perform physical count once near the end of financial year as to tally the account which is showing in the books of account is matched with physical inventoy . This will serve the two purpose First is tally of account and second is self check of inventory before the external audit which will reduce the chance of omission in account.

Inventory costs are rising. Which inventory costing method would have the effect of maximizing net income?

ANSWER:- When the cost is rising . I will perfer FIFO(First  In First Out) because it will give me lowest cost of good sold which will increase my income and therefore i can maximize the net income.

Inventory costs are rising. Which inventory costing method would have the effect of minimizing the amount of income tax?

ANSWER:- When the cost is rising and i have to minimize the amount of tax in that case i will prefer LIFO(Last in first Out ) as it will increase the cost of inventory by which my overall expense will rise which ulimately decrease my income and i have to less income tax.

What do you think will be the biggest accounting issues you will encounter with running your business?

ANSWER:- The biggest accounting for my business or any other business is which accounting method should a management to follow because it is crutial decsion because many big decsions are taken by stakeholder is derived from financials and for the proper financial right accounting method should be followed by the business.