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11 Cards in this Set

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What should be included as Inventory?
Items and only those items, legally owned by the business. Inventory should include all goods that the company owns, regardless of their particular location at the time.
How does the Cost Principle govern the measurement of the ending inventory amount?
The ending inventory is determined in units and the cost of each unit is applied to that number. Under the cost principle, the unit cost is the sum of all costs incurred in obtaining one unit of the inventory item in its present state.
What constitutes "Goods available for sale"?
The sum of the beginning inventory and the amount of goods purchased during the period.
Describe the "Average Cost" inventory costing method?
At the end of the accounting period the average cost is computed by dividing the goods available for sale IN UNITS into the cost of goods available for sale IN DOLLARS. The computed unit cost then is used to determine the cost of goods sold for the period by multiplying the units sold by this average unit cost.
Describe the "FIFO" inventory costing method?
It view the first units purchased as the first units sold (First In, First Out). Under this method cost of goods sold is costed at the oldest unit costs, and the ending inventory is costed at the newest unit costs.
Describe the "LIFO" inventory costing method?
It views the last units purchased as the first units sold (Last In, First Out). Under this method cost of goods sold is costed at the latest unit costs and the ending inventory is costed at the oldest unit costs.
Describe the "Specific Identification" inventory costing method?
This views each specific item at the unit cost of that specific item. This method usually requires that each item be marked, often with a code that indicates its cost. When it is sold, that unit cost is the cost of goods sold amount.
What two ways does LIFO Vs. FIFO affect the income statement?
(1)The amount of cost of goods sold and (2)income. When prices are rising, FIFO will give a lower cost of goods sold amount and hence a higher income amount than will LIFO. In contrast, when prices are falling, FIFO will give a higher cost of goods sold amount and, as a result, a lower income amount.
What affect does LIFO Vs. FIFO have on taxable income?
When prices are rising, income tax is less under LIFO than FIFO. A lower tax bill saves cash. The total amount of cash saved is the difference between LIFO and FIFO inventory amounts multiplied by the income tax rate.
None
LCM Flashcard
Perpetual Inventory Flashcard