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12 Cards in this Set
- Front
- Back
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average days in inventory ratio (sometimes called average number of days to sell inventory ratio)
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Financial ratio that measures the average number of days that inventory stays in stock before it is sold. p. 313
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consistency
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The generally accepted accounting principle that a company should, in most circumstances, continually use the same accounting method(s) so that its financial statements are comparable across time. p. 305
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first in, first out (FIFO) cost flow method
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Inventory cost flow method in which cost of goods sold is computed as if the earliest items purchased are the first items sold. p. 300
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full disclosure
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The accounting principle that financial statements should include all information relevant to an entity's operations and financial condition. Full disclosure frequently requires adding footnotes to the financial statements. p. 305
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gross margin method
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Technique for estimating the ending inventory amount without a physical count; useful when the percentage of gross margin to sales remains relatively stable from one accounting period to the next. p. 310
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inventory cost flow method
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Alternative ways to allocate the cost of goods available for sale between cost of goods sold and ending inventory. p. 302
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inventory turnover
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A measure of sales volume relative to inventory levels; calculated as the cost of goods sold divided by average inventory; indicates how many times a year, on average, the inventory is sold (turned over). p. 312
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last-in, first-out (LIFO) cost flow method
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Inventory cost flow method in which cost of goods sold is computed as if the most recently purchased items are the first items sold. p. 300
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lower-of-cost-or-market rule
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Accounting principle of reporting inventory at its replacement cost (market) if replacement cost has declined below the inventory's original cost, regardless of the cause. p. 308
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physical flow of goods
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Physical movement of goods through a business, normally on a FIFO basis so that the first goods purchased are the first goods delivered to customers, reducing the likelihood of inventory obsolescence. p. 300
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specific identification
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Inventory costing method in which cost of goods sold and ending inventory are computed using the actual costs of the specific goods sold or those on hand at the end of the period. p. 300
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weighted-average cost flow method
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Inventory cost flow method in which the cost allocated between inventory and cost of goods sold is based on the weighted average cost per unit, which is determined by dividing total costs of goods available for sale during the accounting period by total units available for sale during the period. If the weighted average is recomputed with each successive purchase, the result is moving average. p. 300
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