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23 Cards in this Set
- Front
- Back
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What does merchandise inventory include? |
All Goods that a company owns and holds for sale. This rule holds regardless of where the goods are located when inventory is counted |
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What are Goods in transit and is it included in inventory? |
Goods in transit are items owned that are currently being shipped. They are included in the buyers inventory when the shipping terms are fob shipping point , and they are included in the seller's inventory when the shipping terms are fob destination. |
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What are Goods on consignment? |
Goods shipped by the owner , called the consignor, to another party, the consignee. The consignees sells the Goods for the owner |
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For goods on consignment , who owns the inventory? |
The consignor continues to own the consigned goods and reports them in its inventory |
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Are damaged or obsolete Goods counted in inventory? |
They are not counted in inventory if they cannot be sold but if these Goods can be sold at a reduced price, they are included in inventory at a conservative estimate of their net realizable value. |
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What is the net realizable value? |
It is the sales price minus the cost of making the sale |
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How do you determine the cost of an inventory item? |
Taking the invoice cost minus any discount, and plus any incidental costs necessary to put it in a place and condition for sale. |
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What are some incidental costs that can add to the cost of inventory? |
Import tariffs, Freight, storage, insurance, and costs incurred in the aging process |
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What are four methods commonly used to assign cost to inventory? |
Specific identification, first in first out /fifo, lesson for sale / lifo, and weighted average |
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What is the flow of cost for fifo? |
Fifo assumes cost flow in the order incurred |
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What is the cost flow lifo? |
Assume cost flow in the reverse order incurred |
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What is the cost flow for weighted average? |
Assumes cost flow at an average of the cost of available |
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what is the consistency concept? |
Prescribes that a company use the same accounting method period after period so that financial statements are comparable across periods |
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What does LCM stand for? |
Lower of cost or Market |
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What does accounting principles require about inventory cost? |
It requires that inventory be reported at the market value / cost of replacing inventory when market value is lower than cost |
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What is the lower of cost or Market? |
The current replacement cost of purchasing the same inventory items in the usual manner |
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LCM is applied in what three ways? |
1. To each individual item separately 2. To major categories of items 3. To the whole inventory |
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What is the conservatism constraint? |
Prescribes the use of the less optimistic amount when more than one estimate of the amount to be received or paid exists |
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What is the entry to record the lower cost or Market? |
Debit to cost of goods sold and credit to merchandise inventory |
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When the ending inventory is understated what happens? |
In the first year cost of goods sold will be overstated and net income will be understated and in the second year , cost of good sold will be understated and net income will be overstated |
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What happens when the ending inventory is overstated? |
In the first year cost of goods sold will be understated and net income will be overstated and in the second year cost of goods sold will be overstated and net income will be understated |
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What is the inventory turnover ratio? |
Inventory turnover = cost of goods sold ÷ average inventory |
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What is the days sales in inventory ratio? |
Days sales in inventory = (ending inventory ÷ cost of goods sold) x 365 |
