The primary purpose for using an inventory flow assumption is to:
A) Parallel the physical flow of units of merchandise.
B) Offset against revenue an appropriate cost of goods sold.
C) Minimize income taxes.
D) Maximize the reported amount of net income.

Question

Quizplus · Accepted Answer

The primary purpose for using an inventory flow assumption is to offset against revenue an appropriate cost of goods sold. This helps to accurately determine the gross profit and net income of a company. The other options, such as paralleling physical flow of units or minimizing taxes, may be factors in choosing an inventory flow assumption, but they are not the primary purpose. Maximizing reported net income is not a valid reason for choosing an inventory flow assumption as it would not reflect the true cost of goods sold.

The Primary Purpose for Using an Inventory Flow Assumption Is