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21 Cards in this Set
- Front
- Back
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Periodic Inventory System
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-cash register system, seller records only sales price
-has no record of how many units have been sold (verify by physical count) -to debit inv. directly for amount of purchases would yield misleading info about level of inv. b/c inv. acct is not reduced for COGS -Inventory remains untouched until physical count end of period -COGS cannot be computed until aafter physical count -no shrinkage calculation |
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Perpetual Inventory System
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-bar code scanning system
-both selling price and type of item sold are recorded (knows ending inventory) -physical count still required to identify "shrinkage"-lost, stolen, spoiled and then total inv. |
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Periodic Inv. Journal Entry
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-Purchases:
Purchases xx Accounts Payable xx -Sales: Accounts Receiv. xx Sales xx |
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Perpetual Inv. Journal Entry
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-Purchases:
Inventory xx Accounts Pay xx -Sales: Accounts Receiv. xx Sales xx COGS xx Inventory xx |
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FOB shipping point
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-belong to BUYER while in transit and include in buyer's inventory even though hasn't received it yet
-title passes to buyer with loading goods at point of shipment |
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FOB destination
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-belong to seller while in transit and include in SELLER'S inventory
-title does not pass until goods are received by the buyer |
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Goods on Consignment
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-shipper retains title and includes goods in inventory until sale or use by dealer/customer
-reported by shipper at sum of costs and handling/shipping costs incurred in their transfer -Dealer/customer do not report consigned goods b/c do not own the goods |
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Net Method
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-tracks discounts not taken
-strongly preferred -Purchase: Inventory xx Accounts Pay xx -Discount: Account Pay xx Cash xx -No Discount: Accounts Pay xx Discount Lost xx Cash xx -End Period Adjust. Discount Lost xx Accounts Pay xx -Returns/Allowances: Accounts Pay xx Purchase Returns/Allow. xx |
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Gross Method
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-discounts booked only when taken
-Purchases: Inventory xx Accounts Pay xx -Discount: Accounts Pay xx Inventory xx Cash xx -No Discount: Accounts Pay xx Cash xx -End Period Adjust: NO ENTRY REQUIRED -Returns/Allow. Accounts Pay xx Inventory xx |
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Specific Identification
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-identify historical cost of each individual unit of inventory
-for inventory item unique with high cost -flow of recorded costs matches the physical flow of goods -permits profit manipulation |
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Average Cost Method
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-assigns same average cost to each unit
Weighted Avg. Cost=Total Cost/Total Units -compute each time new purchases received -does not permit profit manipulation -heavily influenced by current costs |
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FIFO
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-sell oldest units on hand
-retain most recent purchases as End Inv. -allows little opportunity for profit manipulation |
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LIFO
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-newest units are sold
-does not match the usual flow of goods -retain old units -best at matching current inv. costs with current revenue -reduces taxes in times of inflation for large inventory level -IASB prohibits LIFO |
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Comparison of Methods
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FIFO inclining prices= increase GP margin
FIFO declining prices= decrease GP margin Avg. Cost= same GP margin LIFO increasing prices=stabilized effect on GP margin |
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Lower of Cost or Market (LCM)
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-conservatism
-effect of recognizing unrealized decreases in value of assets but not unrealized increases market=replacement cost=entry cost Ceil=Selling Price-Normal Selling Cost Floor=Ceil-Normal Profit Market=middle of Ceil/Floor/Replace LCM= lesser of Historical/Market Individual=sum of each LCM Whole= lesser of Total Cost/Market Journal Entry Individual Loss from Decline in Value of Inventory xx Inventory xx (Total Cost-LCM) Whole Loss from Decline in Value of Inventory xx Allowance for Decline in Value of Inventory xx (Total Cost-Total Market) AJE for subsequent years Allowance for Decline in Value of Inventory xx COGS xx |
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Specific Identification
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-identify historical cost of each individual unit of inventory
-for inventory item unique with high cost -flow of recorded costs matches the physical flow of goods -permits profit manipulation |
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Average Cost Method
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-assigns same average cost to each unit
Weighted Avg. Cost=Total Cost/Total Units -compute each time new purchases received -does not permit profit manipulation -heavily influenced by current costs |
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FIFO
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-sell oldest units on hand
-retain most recent purchases as End Inv. -allows little opportunity for profit manipulation |
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LIFO
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-newest units are sold
-does not match the usual flow of goods -retain old units -best at matching current inv. costs with current revenue -reduces taxes in times of inflation for large inventory level -IASB prohibits LIFO |
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Comparison of Methods
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FIFO inclining prices= increase GP margin
FIFO declining prices= decrease GP margin Avg. Cost= same GP margin LIFO increasing prices=stabilized effect on GP margin |
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Lower of Cost or Market (LCM)
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-conservatism
-effect of recognizing unrealized decreases in value of assets but not unrealized increases market=replacement cost=entry cost Ceil=Selling Price-Normal Selling Cost Floor=Ceil-Normal Profit Market=middle of Ceil/Floor/Replace LCM= lesser of Historical/Market Individual=sum of each LCM Whole= lesser of Total Cost/Market Journal Entry Individual Loss from Decline in Value of Inventory xx Inventory xx (Total Cost-LCM) Whole Loss from Decline in Value of Inventory xx Allowance for Decline in Value of Inventory xx (Total Cost-Total Market) AJE for subsequent years Allowance for Decline in Value of Inventory xx COGS xx |
