ACCT1501 Chapter Notes - Chapter 9: Historical Cost, Fixed Asset, Current Asset
Document Summary
Inventory is an important issue for management because a high percentage of working capital can be tied up tin inventory: periodic method. Under the periodic method, cogs expense includes all other possibilities (lost, stolen, evaporated and so on). If the periodic method is used, other forms of control need to exist to indicate theft and so on. For example, unexpected changes in the ratio of cogs to sales should be investigated: cost and benefits of controls. Companies selling expensive items, such as cars, television sets, stereos, refrigerators, jewellery or furniture, use the perpetual method. Also, because of the relatively small quantity of inventory sold by most dealerships, record-keeping costs are not high. In the past, many organisations that had a large number of sale, particularly of items with relatively low value, use the periodic inventory method because of its lower costs.
