Question

Why might a company estimate ending inventory instead of performing a physical count? The mathematical estimates...

  1. Why might a company estimate ending inventory instead of performing a physical count?

    The mathematical estimates can determine if inventory has been lost.

    The mathematical estimates are more accurate than 'doing inventory.'

    The mathematical estimates take less time and are all acceptable under GAAP.

    The mathematical estimates result in greater job security for accounting staff.

When can we NOT use the ending inventory estimate from the gross profit method?

  1. When performing a quick check of reporting inventory as an auditor.

    When reporting inventory lost in a fire to an insurance company.

    When reporting inventory on the annual financial statements.

    We can use the gross profit method for all of these situations.
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