Depending on the cost flow method used the cost of ending inventory and the cost of goods sold reported are directly affected. It is in fact critical for companies to decide which cost flow method to adopt, and there are several factors that affect their decision. The first factor that limits the choice of companies is the requirements of regulatory bodies. LIFO is forbidden by most of the regulators especially by the ones in hyper-inflationary economies. The other factor which affects the decision made is the purpose of the company. In other words, if the company is planning to sell its shares in the market, then it wants to be evaluated as a profitable company and would prefer to choose the method which will show its financials in a more profitable way. On the other hand, if a company wants to pay less tax, then it would prefer to choose the method which will show the company less profitable.

However, it is more profitable to use 360 days instead of 365 because the note holder receives more interest.

Cash (net) realizable value shows the credit sales price adjusted for returns, discounts, and allowances expected to be collected from customers. The correct answer is E.

Committee of Sponsoring Organization of the Treadway Commission (COSO) is a joint initiative of
some private sector organizations. COSO published Internal Control-Integrated Framework in 1992.

First entry above shows that ABC Co. sells its goods at 2,000 TL on credit. Hence, accounts receivables account is debited and sales revenue account is credited at the same amount of 2,000 TL. In the second entry, however, the accounting impact of customer returns, which is 200 TL worth, is reported. In this case, as it returns the goods, the customer will pay less in the future. For this reason, accounts receivable is credited by 200 TL to account for such a decrease. Sales returns and allowances account is debited to Cash discounts are intended to encourage the customer to make their payment earlier. Date June 1 Accounts Receivable Account Titles and Short Explanation Debit Credit 2,000 Sales Revenue 2,000 To record sales on account Date June 5 Sales Returns and Allowances Account Titles and Short Explanation Debit Credit 200 Accounts Receivable 200 To record goods returned Date June 11 Account Titles and Short Explanation Debit Credit Cash (1,800 TL - 36 TL) Sales Discounts (1,800 TL x 0.02) 1,764 36 Accounts Receivable 1,800 To record collection of accounts receivable in a discount period 225 Accounting I record for customer returns. Third entry presents the records pertaining to the collection of receivables before the maturity predetermined as 30 days. Since the customer makes an early payment, ABC Co. applies a discount of 2% on the remaining receivable balance of 1,800 TL. This 36 TL discount is debited as sales discount. Cash is also debited to stand for the collection of receivables after discount. Ultimately, accounts receivable is credited as a whole in order to close the open balance.

Last-in, First-out (LIFO) is just the opposite of FIFO. Under the last-in, first-out (LIFO) method, ending inventory comes from the oldest costs (beginning inventory and earliest purchases) of the period. The cost of goods sold is based on the most recent purchases (new costs) –that is, the last units in are assumed to be the first units out of the warehouse (sold). This method is forbidden for being misleading especially in hyperinflationary economies. The correct answer is E.

Control Environment: It defines a set of standards, processes, and structures that provide a basis to carry control consciousness across the businesses.

Fraud is an intentional misrepresentation of facts which is made made for purpose of persuading another party to act in a way that causes injury or damage to that party. The correct answer is D.

Average Cost Method is an inventory costing method based on the weighted average cost per unit of inventory that is calculated after each purchase. Weighted average cost per unit is determined by dividing the cost of goods available for sale by the number of units available.

In this context, internal control can be defined as a plan and a system of control procedures designed and implemented by the management and the board of directors

Conservatism in accounting means being careful in reporting items in the financial statements.

Control activities are some policies and procedures which ensure that the actions taken for the achievement of the objectives are performed effectively. The correct answer is D.

A business’s financial statements must report enough information for outsiders to make knowledgeable decisions about the company because of the disclosure principle rules.

Perpetual Inventory System is an inventory system of tracking and recording inventory
and cost of goods sold on a continual basis

Owner’s equity shows the owners’ investments, profit and loss of the period.

Identifying includes selecting financial transactions. Recording includes recording, classifying, and summarizing. Communicating includes preparing financial reports.

Cheaper system is not among the advantages of online banking.

The cost of merchandise sold is subtracted from sales to arrive at gross profit. The correct choice is D.

If the merchandise inventory is sold, its cost is taken from inventory account in balance sheet and recognized as an expense (cost of goods sold) in the income statement.