If inventories are significant, GAAP requires that an asset account be credited in order to record a fund balance reserve when using the purchases method.

Question

Quizplus · Accepted Answer

Under GAAP, when using the purchases method, an asset account is not credited to record a fund balance reserve; instead, expenditures are recorded when inventory is purchased, and adjustments are made at the end of the period to reflect the actual inventory on hand.

If Inventories Are Significant, GAAP Requires That an Asset Account