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24 Cards in this Set
- Front
- Back
Average Days to Sell Inventory |
This measure represents the average number of days' sales for which a company has inventory on hand. |
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Conventional Retail Inventory Method |
Uses only the assumption that a cost ratio using markups but not markdowns. It approximates the lower-of-average-cost-or-market. Also known as the lower-of-cost-or-market approach. |
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Cost-of-Goods-Sold Method |
Debits cost of good sold for the write-down of the inventory to NRV. As a result, the company does not report a loss in the income statement because the cost of goods sold already includes the amount of the loss. |
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Cost-to-Retail Ratio |
The formula for this computation is to divide the total goods available for sale at cost by the total goods available at retail price. |
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Designated Market Value |
The amount that a company compares to cost. It is always the middle value of three amounts: replacement cost, net realizable value, and net realizable value less a normal profit margin. |
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Dollar-Value LIFO Retail Method |
If the price value does change, the company must eliminate the price change so as to measure the real increase in inventory, not the dollar increase. |
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Gross Profit Method |
Also called the gross margin method. 1. The beginning inventory plus purchases equal total goods to be accounted for. 2. Goods not sold must be on hand. 3. The sales, reduced to cost, deducted from the sum of the opening inventory plus purchases, equal ending inventory. |
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Gross Profit Percentage |
Stated as a percentage of selling price. |
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Inventory Turnover |
Measures the number of times on average a company sells the inventory during the period. |
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LIFO Retail Method |
The use of LIFO retail method is made under two assumptions: 1. stable prices and 2. fluctuating prices. |
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Loss Method |
Debits a loss account for the write-down of the inventory to NRV. |
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Lower Limit (Floor) |
The net realizable value less a normal profit margin. |
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Lower-of-Cost-or-Market (LCM) |
This approach begins with replacement cost, then applies two additional limitations to value ending inventory -- net realizable value and net realizable value less a normal profit margin. |
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Lower-of-Cost-or-Net Realizable Value (LCNRV) |
If the current replacement cost of an item in inventory is greater than NRV, the NRV is used as the market amount. Lower Limit or Floor for Market The lower limit, or floor, for the market amount is the net realizable value (NRV) minus the normal profit. |
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Lump Sum (Basket) Purchase |
When a company buys a group of varying units in a single purchase. |
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Markdown |
Decreases in the original sales price. |
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Markdown Cancellations |
Occur when the markdowns are later offset by increases in the prices of goods that the retailer had marked down. |
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Markup |
An additional markup of the original retail price. |
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Markup Cancellations |
Decreases in prices of merchandise that the retailer had marked up above the original retail price. |
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Net Realizable Value (NRV) |
Refers to the net amount that a company expects to realize from the sale of inventory. |
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Net Realizable Value Less a Normal Profit Margin |
Lower limit (floor). |
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Purchase Commitments |
Agreements to buy inventory weeks, months, or even years in advance. |
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Retail Inventory Method |
Requires that a retailer keep a record of 1. the total cost and retail value of goods purchased 2. the total cost and retail value of the goods available for sale, and 3. the sales for the period. |
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Upper Limit (Ceiling) |
The net realizable value of inventory. |