Accounting Chapter 7

Front 1

Inventory

Back 1

Tangible property held for sale in the normal course of business or used in producing goods or services for sale

Front 2

Merchandise Inventory

Back 2

Goods held for resale in the ordinary course of business

Front 3

Raw Materials Inventory

Back 3

Items acquired for the purpose of processing into finished goods

Front 4

Work in Process Inventory

Back 4

Goods in the process of being manufactrued but not yet complete. When completed, work in process inventory --> finished goods inventory

Front 5

Finished Goods Inventory

Back 5

manufactured goods that are complete and ready for sale

Front 6

Direct labor

Back 6

the earnings of employees who work directly on the products being manufactured

Front 7

When merchandise is purchased, the merchandise inventory account ______

Back 7

Increases

Front 8

When merchandise goods are sold, COGS ____ and merchandise inventory _____

Back 8

increases; decreases

Front 9

When raw materials are used, COGS is removed from _____ and and added to _____

Back 9

raw materials inventory; work in process inventory

Front 10

Factory overhead

Back 10

manufacturing costs that are not raw material or direct labor costs:
- cost of heat
- cost of light
- cost of power
- superviser's salary
- etc.

Front 11

When finished goods are sold, cost of goods sold ____, and finished goods inventory ____

Back 11

increases; decreases

Front 12

Goods Available for Sale

Back 12

Beginning Inventory + Purchases

Front 13

Cost of Goods Sold

Back 13

BI + P - EI = CGS

Front 14

Four Inventory Costing Methods

Back 14

1. Specific identification
2. First in, first out (FIFO)
3. First in, last out (FILO)
4. Average Cost

Front 15

Specific Identification Method

Back 15

Identifies cost of specific item sold; good for expensive unique items

Front 16

FIFO

Back 16

The first goods purchased are the first good sold

Front 17

LIFO

Back 17

The most recently purchased units are sold first

Front 18

Average Cost Method

Back 18

Cost of Goods Available for Sale / Number of Units Available for Sale

Front 19

When unit costs are rising, LIFO produces _____ income and a _____ inventory valuation than FIFO

Back 19

lower; lower

Front 20

When unit costs are declining, LIFO produces _____ income and _____ inventory valuation than FIFO

Back 20

higher; higher

Front 21

LIFO conformity rule

Back 21

If LIFO is used on the income tax return, it must also be used to calculate inventory and COGS for financial statements

Front 22

For inventory with decreasing costs, ____ is most often used for both tax return and financial statements

Back 22

FIFO

Front 23

For inventory with increasing csots, ____ is used on the tax return because it normally results in lower income taxes

Back 23

LIFO

Front 24

Regardless of _______, a company can use any of the inventory costing methods

Back 24

physical flow of goods

Front 25

Changes in methods are made to improve __________

Back 25

The measurement of financial results and financial position

Front 26

Replacement Cost

Back 26

The current purchase price for identical goods

Front 27

Net Realizable Value

Back 27

The expected sales price minus selling costs (repair and disposal costs)

Front 28

LCM

Back 28

Lower of Cost or Market is the evaluation method departing from the cost principle; it serves to recognize a loss when replacement cost or net realizable value drops below cost

Front 29

Inventory Turnover

Back 29

Cost of Goods Sold / Average Inventory

Front 30

Inventory Turnover - Interpretation

Back 30

Reflects how many times average inventory is produced and sold during a period

Front 31

Replacement Cost

Back 31

The current purchase price for identical goods

Front 32

Net Realizable Value

Back 32

The expected sales price minus selling costs (repair and disposal costs)

Front 33

LIFO Liquidation

Back 33

When a LIFO company sells more inventory than it purchases or manufactures, items from beginning inventory become part of COGS

Front 34

Purchase Returns and Allowances

Back 34

A reduction in the cost of purchases associated with unsatisfactory goods

Front 35

2/10 and n/10 terms means that if payment is made within __ days of the purchase, a ___ percent cash discount is applied. Otherwise, there is no discount.

Back 35

10; 2