The following is an excerpt from a conversation between Paula Marlo, the warehouse manager for Musick Foods
Question:
Paula: Mike, can you explain what's going on here with these monthly statements?
Mike: Sure, Paula. How can I help you?
Paula: I don't understand this last-in, first-out inventory procedure. It just doesn't make sense.
Mike: Well, what it means is that we assume that the last goods we receive are the first ones sold. So the inventory consists of the items we purchased first.
Paula: Yes, but that's my problem. It doesn't work that way! We always distribute the oldest produce first. Some of that produce is perishable! We can't keep any of it very long or it'll spoil.
Mike: Paula, you don't understand. We only assume that the products we distribute are the last ones received. We don't actually have to distribute the goods in this way.
Paula: I always thought that accounting was supposed to show what really happened. It all sounds like "make believe" to me! Why not report what really happens?
Respond to Paula's concerns.
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Related Book For
Corporate Financial Accounting
ISBN: 978-1133952411
12th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan E. Duchac
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