Accounting Chapter 6

Front 1

average-cost method

Back 1

inventory costing method based on the average cost of inventory during the period. average cost is determined by dividing the cost of goods available by the number of units available. also called the weighted-average method

Front 2

consignment

Back 2

an inventory arrangement where the seller sells inventory that belongs to another party. the seller does not include consigned merchandise on hand in its balance sheet, because the seller does not own this inventory

Front 3

conservatism

Back 3

the accounting concept by which the least favorable figures are presented in the financial statements

Front 4

consistency principle

Back 4

a business must use the same accounting methods and procedures from period to period

Front 5

cost of goods sold

Back 5

cost of the inventory the business has sold to customers

Front 6

cost-of-goods-sold model

Back 6

formula that brings together all the inventory data for the entire accounting period: beginning inventory + purchases = goods available. then goods available - ending inventory = cost of goods sold

Front 7

debit memorandum

Back 7

a document issued to the seller (vendor) when an item of inventory that is unwanted or damaged is returned. this document authorizes a reduction (debit) to accounts payable for the amount of the goods returned

Front 8

disclosure principle

Back 8

a business's financial statements must report enough info for outsiders to make knowledgeable decisions about the business. the company should report relevant, reliable, and comparable info about its economic affairs

Front 9

first-in, first-out (FIFO) cost (method)

Back 9

inventory costing method by which the first costs into an inventory are the first costs out to cost of goods sold. ending inventory is based on the costs of the most recent purchases

Front 10

FOB

Back 10

"free on board" a legal term that designates the point at which title passes for goods sold. FOB shipping point means that the buyer owns, and therefore is legally obligated to pay for goods at the point of shipment, including transportation costs. in this case, the buyer owns the goods while they are in transit from the seller and must include their costs, including freight, in inventory at that point. FOB destination means that the seller pays the transportation costs, so the goods do not belong to the buyer until they reach the buyer's place of business

Front 11

gross margin

Back 11

another name for gross profit

Front 12

gross margin method

Back 12

another name for the gross profit method

Front 13

gross margin percentage

Back 13

another name for the gross profit percentage

Front 14

gross proft

Back 14

sales revenue minus cost of goods sold. also called gross margin

Front 15

gross profit method

Back 15

a way to estimate inventory based on a rearrangement of the cost-of-goods-sold model: beginning inventory + net purchases = goods available - cost of goods sold = ending inventory. also called the gross margin method

Front 16

gross profit percentage

Back 16

gross profit divided by net sales revenue. also called the gross margin percentage

Front 17

inventory

Back 17

the merchandise that a company sells to customer

Front 18

inventory turnover

Back 18

ratio of cost of goods sold to average inventory. indicates how rapidly inventory is sold

Front 19

last-in, first out (LIFO) cost (method)

Back 19

inventory costing method by which the last costs into inventory are the first costs out to cost of goods sold. this method leaves the oldest costs - those of the beginning inventory and the earliest purchases of the period - in ending inventory

Front 20

lower-of-cost-or-market (LCM) rule

Back 20

requires that an asset be reported in the financial statements at whichever is lower - its historical cost or its market value (current replacement cost for inventory)

Front 21

periodic inventory system

Back 21

an inventory system in which the business does not keep a continuous record of the inventory on hand. Instead, at the end of the period, the business makes a physcial count of the inventory on hand and applies the appropriate unit costs to determine the cost of the ending inventory

Front 22

perpetual inventory system

Back 22

an inventory system in which the business keeps a continuous record for each inventory item to show the inventory on hand at all times

Front 23

purchase allowance

Back 23

a decrease in the cost of purchases because the seller has granted the buyer a subtraction (an allowance) from the amount owed

Front 24

purchase discount

Back 24

a decrease int he cost of purchases earned by making an early payment to the vendor

Front 25

purchase return

Back 25

a decrease in the cost of purchases because the buyer returned the goods to the seller

Front 26

specific-unit-cost method

Back 26

inventory cost method based ont eh specific cost of particular units of inventory

Front 27

weighted-average method

Back 27

another name for the average-cost method