AFC Inventory Management Flashcards
6 cards from real AFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 AFC Inventory Management flashcards as text
Which inventory method is NOT permitted under IFRS but is allowed under US GAAP?
Answer: LIFO
LIFO (Last-In, First-Out) is prohibited under IFRS because it can result in outdated inventory values on the balance sheet.
Cost of goods sold is calculated as:
Answer: Beginning inventory + Purchases – Ending inventory
COGS = Beginning Inventory + Purchases (net) − Ending Inventory, representing the cost of units sold during the period.
A company discovers that ending inventory was overstated by $5,000. What is the effect on net income for that period?
Answer: Net income is overstated by $5,000
Overstated ending inventory reduces COGS (since COGS = BI + Purchases − EI), which overstates gross profit and net income.
What does inventory turnover ratio measure?
Answer: How many times inventory is sold and replaced in a period
Inventory turnover = COGS ÷ Average Inventory, indicating how efficiently a company sells its inventory during a period.
Which of the following costs is NOT included in the cost of inventory under US GAAP?
Answer: Storage costs after purchase
Storage and handling costs incurred after inventory is purchased and ready for sale are period costs, not product costs, under US GAAP.
During a physical inventory count, a company finds 50 units on hand but its records show 60 units. The journal entry to correct this discrepancy would:
Answer: Debit Inventory Shortage and credit Inventory
The 10-unit shortage requires a debit to an Inventory Shortage (or Loss) account and a credit to Inventory to reduce it to the physical count.