Accounting Test Chapter 7

Front 1

Items included in invetory:

Back 1

merchandise inventory, raw materials inventory, work in process inventory, finished goods inventory

Front 2

Costs included in inventory purchases

Back 2

-(the cost principle requires that inventory be recorded at the price paid or the consideration given)- invoice price, freight, inspection costs, preparation costs

Front 3

goods available for sale=

Back 3

Beginning inventory+purchases

Front 4

Costs of goods sold=

Back 4

Goods available for sale-ending inventory

Front 5

Inventory Costing methods

Back 5

1. Specific identification
2. First-in, first out
3. Last in, first out
4. Weighted average

Front 6

FIFO

Back 6

The costs of most recent purchases are in ending inventory. Start with beginning date and add units purchased until you reach the number in ending inventory. Advantage- ending inventory approximates current replacement cost.

Front 7

LIFO

Back 7

The costs of the oldest purchases are in ending inventory. Start with beginning inventory and add units purchased until you reach the number in ending inventory. Advantage- Better matches current costs in cost of goods sold with revenues

Front 8

Average Cost

Back 8

Cost of goods available for sale/ number of units available for sale. Advantage-smoothes out price changes

Front 9

Manager’s choice of inventory methods-

Back 9

1) Managers prefer to report higher earnings for their companies (net income effects)
2) Managers prefer to pay the least amount of taxes allowed by law as late a possible ( income tax effects)

Front 10

LIFO conformity rule

Back 10

If LIFO is used on the income tax return, it must alse be used to calcualate inventory and cost of goods sold for financial statements.

Front 11

Inventory turnover=

Back 11

Cost of goods sold/average inventory,
average inventory is (beg inv.+end inv)/2