Question

Match the accounting terms with the corresponding definitions.

1. Specific identification

2. Materiality concept

3. Last-in, first-out (LIFO)

4. Conservatism

5. Consistency principle

6. Weighted-average

7. Disclosure principle

8. First-in, first-out (FIFO)

a. Treats the oldest inventory purchases as the first units sold.

b. Requires that a company report enough information for outsiders to make knowledgeable decisions.

c. Identifies exactly which inventory item was sold. Usually used for higher cost inventory.

d. Calculates a weighted-average cost based on the cost of goods available for sale and the number of units available.

e. Principle whose foundation is to exercise caution in reporting financial statement items.

f. Treats the most recent/newest purchases as the first units sold.

g. Businesses should use the same accounting methods from period to period.

h. Principle that states significant items must conform to GAAP.

Short answer

1. c

2. h

3. f

4. e

5. g

6. d

7. b

8. a

Step-by-step solution

Step 1: Specific indentification

Specific identification is an inventory valuation method in which each issued inventory is valued against a specific cost. This method is useful for unique and expensive inventories.

So, the correct match is the statement (c).

Step 2: Materiality concept

The materiality concept is based on the principle that only events that have some monetary value that can affect the financial statements must be reported only.

So, the correct match is the statement (h).

Step 3: Last-in, first-out (LIFO)

Last in first out is a cost flow assumption used in inventory valuation that values the issued inventory at the latest prices or in the reverse order of acquiring them.

So, the correct match is the statement (f).

Step 4: Conservatism

Conservatism is a principle that forbids anticipating future benefits but requires anticipating and reporting future losses.

So, the correct match is the statement (e).

Step 5: Consistency principle

The consistency principle requires adopting a uniform method and assumptions to prepare financial statements.

The correct match for this is the statement (g).

Step 6: Weighted-average

The weighted average is another method of inventory valuation based on the average cost flow assumption.

The correct match for this is statement (d).

Step 7: Disclosure principle

The disclosure principle requires to reveal of all relevant and important financial information to the parties of financial statements.

The correct match for this is the statement (b).

Step 8: First-in, first-out (FIFO)

First in first out is an inventory valuation method based on the first in first out cost flow assumption. This method is just the opposite of the LIFO method.

The correct match for this is the statement (a).