ACCT 217 Chapter Notes - Chapter 6: Inverse Relation, Perpetual Inventory, Financial Statement
Document Summary
Internal control is a process designed to help an organization achieve reliable financial reporting, effective and efficient operations, and compliance with relevant laws and regulations. It is used most often in situations involving a relatively small number of costly items that are easily distinguishable (e. g. , by their physical characteristics, serial numbers, or special markings). Examples include some types of jewellery, art work, pianos, and automobiles. In periods of inflation,(when prices are rising) fifo produces a higher profit as the lower unit costs of the first units purchased are deducted from sales revenue. If prices are falling, the results from the use of fifo and average are reversed: fifo will report the lowest profit and average the highest. If prices are stable, both cost formulas will report the same results: compared with fifo, average will result in more recent costs being reflected in the cost of goods sold.