Inventory

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Perpetual inventory system

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A system in which the company tracks changes in the inventory account by recording all purchases and sales (issues) of goods directly in the inventory account as they occur

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Periodic inventory system

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A company determines the quantity of inventory on hand only periodically, as the name implies

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Modified perpetual inventory system

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Provides detailed inventory records of increases and decreases only to protect against stock-outs or overpurchasing

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Cost of goods available for sale or use

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Sum of cost of goods on hand at the beginning of the period and the cost of goods acquired or produced during the period

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Cost of goods sold

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The difference between the cost of goods available for sale during the period and the cost of goods on hand at the end of the period

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Fob shipping point

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Title passes to the buyer when the supplier delivers the goods to the common carrier

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Fob destination

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Title passes to the buyer only when it receives the goods from the common carrier

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Product cost

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Costs attached to the inventory

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Period costs

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Costs that are indirectly related to the acquisition or production of goods

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Purchase discount

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Account in a periodic inventory system that indicates that the company is reporting its purchases and accounts payable at the gross amount

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Gross method

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Reports purchase discounts as a deduction from purchases on income statement

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Net of the cash discountd

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An approach in which the purchases and accounts payable is recorded as the net amount

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Net method

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A method in which the failure to receive the discount recorded as a loss

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Cash flow assumptions

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The assumption to assign costs to the inventory sold

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Specific identification

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Identifying the costs for each item sold and each item in inventory for

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Average cost method

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prices items in the inventory on the basis of the average cost of all similar goods available during the period (moving average method with perpetual inventory records and weighted average method when using the periodic inventory method)

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Lifo reserve

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The allowance to reduce inventory to lifo account, the allowance to reduce inventory to lifo level, which is the difference between the inventory method used for internal reporting purpose and lifo

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Lifo effect

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The change in the allowance balance from one period to another

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Specific goods pooled lifo approach

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An approach in which items of similar nature is pooled together

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Dollar value lifo

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Determines and measures any increases and decreases in a pool in terms of total dollar value, not the physical quantity of goods in the inventory pool

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Lifo liquidation

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Erosion of the lifo inventory that often distorts net income and leads to substantial tax payments

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Long term debt

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Probable future sacrifices of economic benefits arising from present obligations that are not payable within a year or operating cycle, whichever is longer

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Bond indenture

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A contract that states a sum of money at designated maturity date, plus periodic interest at a specified rate on the maturity amount (face value)

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Secured bonds

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Bonds backed by a pledge of some sort of collateral

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Debenture bonds

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Unsecured bonds not backed by collateral

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Term bonds

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Bond issues that mature on a single date

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Serial bonds

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Bonds that mature in installments

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Callable bonds

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Bonds that give the issuer the right to call and redeem the bonds prior to maturity

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Convertible bonds

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Bonds that are convertible into other securities of the corporation for a specified time after issuance

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Commodity backed bonds

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Are bonds that are redeemable in measures of a commodity, such as barrels of oil, tons of coal, or ounces of rare metal

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Deep discount bonds (zero interest debenture bonds)

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Bonds sold at discount that provides the buyer’s total interest payoff at maturity

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Registered bonds

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Bonds issued in the name of the owner, and require surrender of the certificate and issuance of a new certificate to complete a sale

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Bearer or coupon bonds

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Bonds not recorded in the name of the owner and may be transferred from one owner to another by mere delivery

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Income bonds

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Bonds that pay no interest unless the issuing company is profitable

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Revenue bonds

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Bonds with the interest that is paid from specified revenue sources, most frequently issued by airports, school districts, counties, toll-road authorities, and governmental bodies

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Stated, coupon, or nominal rate

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The interest rate written in the terms of the bond indenture

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Par value, principal amount, maturity value, face value

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The price the bond is sold for

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Discount

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When the bonds sell for less than the face value

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Premium

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When the bonds sell for more than the face value

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Effective yield/market rate

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Rate of interest actually earned by the bond holders

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Straight-line method

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The method that amortized a constant amount each interest period

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Effective interest rate

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The bond interest expense is computed by multiplying the carrying value of the bonds at the beginning of the period by the effective interest rate, while the bond discount or premium amortization is determined by comparing the bond interest expense with the interest (cash) to be paid