assumption

Examples of assumption in the following topics:

• Cost Flow Assumptions

  • Inventory cost flow assumptions (e.g., FIFO) are necessary to determine the cost of goods sold and ending inventory.
  • Inventory cost flow assumptions are necessary to determine the cost of goods sold and ending inventory.
  • Companies make certain assumptions about which goods are sold and which goods remain in inventory (resulting in different accounting methodologies).
  • LIFO and weighted average cost flow assumptions may yield different end inventories and COGS in a perpetual inventory system than in a periodic inventory system due to the timing of the calculations.
  • Explain how a company's inventory cost flow assumptions dictate which method it will use for inventory valuation

• The LIFO Reserve

  • Some systems permit determining the costs of goods at the time acquired or made, but assigning costs to goods sold under the assumption that the goods made or acquired last are sold first.
  • Such a reserve (an asset or a contra-asset) represents the difference in cost of inventory under the FIFO and LIFO assumptions.

• FIFO Method

  • These methods are used to manage assumptions of cost flows related to inventory, stock repurchases (if purchased at different prices), and various other accounting purposes .
  • Different accounting methods produce different results, because their flow of costs are based upon different assumptions.
  • Keep in mind the FIFO assumption: Costs of the first goods purchased are those charged to cost of goods sold when the company actually sells goods.

• Components of Inventory Cost

  • Determining overhead costs often involves making assumptions about what costs should be associated with production activities and what costs should be associated with other activities.
  • Traditional cost accounting methods attempt to make these assumptions based on past experience and management judgment as to factual relationships.
  • More or fewer goods may be produced than expected when developing cost assumptions (like burden rates).

• Flow of Inventory Costs

  • Accounting techniques are used to manage assumptions of cost flows related to inventory and stock repurchases.
  • These methods are used to manage assumptions of cost flows related to inventory, stock repurchases (if purchased at different prices), and various other accounting purposes.

• Fundamental Accounting Equation

  • This identity reflects the assumption that all of a company's assets are either financed through debt or through the contribution of funds by the company's owners.

• Advantages of LIFO

  • These methods are used to manage assumptions of cost flows related to inventory , stock repurchases (if purchased at different prices), and various other accounting purposes.

• Cost of Land

  • This is based on the assumption that land is acquired for business use and not as an asset held for sale.

• Calculating Fair Value

  • FASB indicates that assumptions enter into models that use Level 2 inputs, a condition that reduces the precision of the outputs (estimated fair values), but nonetheless produces reliable numbers that are representationally faithful, verifiable and neutral.
  • Significant assumptions or inputs used in the valuation technique are based upon inputs that are not observable in the market and are based on internal information.

• Introduction to GAAP

  • In cases when liquidation is certain, this assumption is not applicable.
  • Differentiate between GAAP constraints, assumptions and principles, and the role they play in the preparation of financial statements