Asked by Mitchell Allen on May 31, 2024
Verified
The gross profit method is used to determine the value of beginning inventory using a predetermined gross profit rate.
Gross Profit Method
An inventory estimation technique calculating the cost of goods sold by applying a gross profit margin to sales, used for interim financial reporting and estimating inventory levels.
Beginning Inventory
The value of stock held by a business at the start of an accounting period.
Gross Profit Rate
The percentage of revenue that exceeds the cost of goods sold, indicating the efficiency of production and pricing.
- Apply the gross profit calculation to determine inventory amounts and appreciate its consequences on financial documentation.
Verified Answer
RA
Robert AlberterisJun 01, 2024
Final Answer :
False
Explanation :
The gross profit method is used to estimate the cost of ending inventory or the cost of goods sold, not the value of beginning inventory, by applying a predetermined gross profit rate to sales.
Learning Objectives
- Apply the gross profit calculation to determine inventory amounts and appreciate its consequences on financial documentation.