I need 2 substantive responses to the posts attached below by my fellow classmates. The responses must be substantive and have a minimum of 50 words.
After reading Greenberg and Wilnerâ€™s article, â€œTeaching Inventory Accounting: A Simple Learning Strategy to Achieve Student Understandingâ€ (2011), found at: Greenberg, R. K. & Wilner, N.A. (2011). Teaching inventory accounting: A simple learning strategy to achieve student understanding . Issues in Accounting Education, 26(4): 835-844
Discuss why you think the authorsâ€™ statement below causes confusion among students in regard to understanding the differences among FIFO, LIFO, and average cost:
Students have a difficult time understanding the difference between the physical flow of inventory and the cost flow assumption. Specifically, they do not understand that the actual physical flow of goods relates to a process undertaken by a manufacturer or merchandiser, while the cost flow assumption relates to accounting reporting conventions. The physical flow does not have to be the same as the cost flow assumption (p.836).
Honestly, I read this article first out of the required reading and the whole thing confused me. After reading it, I could not tell you the difference between cost flow and physical flow. The water bottle scenario did not help either. I believe I have a clear understanding though after reading this in the text book: â€œGrocers prefer a FIFO physical flow of milk cartons. Consumers prefer a LIFO flow as they desire a long refrigerator life and reach for the recently stocked milk. However, the cost flow in accounting need not match the physical flow in the store. I believe this means the consumer may purchase the items in LIFO terms while the grocer accounts for cost flow in FIFO terms
I think this statement confuses learners as it says the physical flow relates to the manufacturer. Maybe if it said that it relates to what the customer does, it may have been clearer. As stated earlier, I have a better understanding after reading the grocer vs. consumer example in the text book.
I believe students are confused by the statement because its hard to understand that the financial records do not have to record actual costs. large amounts of inventory are manotinous to track specific costs for a specific item in thousanda of lots of merchandise. I too am a bit confused but think I am starting to get the idea. Like LIFO takes the most recent amounts paid out of inventory regardless of when the inventory was purchased. Average cost would take all amounts paid per group and divide it by the number of groups purchased in that accounting period. While trying to grasp this concept I did a search on cost vs physical flow inventory I came across a website that helped clarify. Cost flow is the real or assumed association of costs with goods either sold or in inventory. The assumed cost flow may or may not be the same as the actual goods flow.Though this statement or practice may appear strange, there is nothing wrong or illegal about this practice. Generally Accepted Accounting Principles (GAAP) accepts the use of an assumed cost flow that does not reflect the real physical movement of goods. Prabhjot Kaur. (2016)The Beginners Guide to Inventory Valuation. Retrieved from http://www.yourarticlelibrary.com/accounting/inven… . Im not sure if I could say this is a credable source but it sure did help me understand a bit better.