Intermediate Accounting - Chapter 9

Front 1

Average Days to Sell Inventory

Back 1

This measure represents the average number of days' sales for which a company has inventory on hand.

Front 2

Conventional Retail Inventory Method

Back 2

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.

Front 3

Cost-of-Goods-Sold Method

Back 3

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.

Front 4

Cost-to-Retail Ratio

Back 4

The formula for this computation is to divide the total goods available for sale at cost by the total goods available at retail price.

Front 5

Designated Market Value

Back 5

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.

Front 6

Dollar-Value LIFO Retail Method

Back 6

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.

Front 7

Gross Profit Method

Back 7

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.

Front 8

Gross Profit Percentage

Back 8

Stated as a percentage of selling price.

Front 9

Inventory Turnover

Back 9

Measures the number of times on average a company sells the inventory during the period.

Front 10

LIFO Retail Method

Back 10

The use of LIFO retail method is made under two assumptions: 1. stable prices and 2. fluctuating prices.

Front 11

Loss Method

Back 11

Debits a loss account for the write-down of the inventory to NRV.

Front 12

Lower Limit (Floor)

Back 12

The net realizable value less a normal profit margin.

Front 13

Lower-of-Cost-or-Market (LCM)

Back 13

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.

Front 14

Lower-of-Cost-or-Net Realizable Value (LCNRV)

Back 14

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.

Front 15

Lump Sum (Basket) Purchase

Back 15

When a company buys a group of varying units in a single purchase.

Front 16

Markdown

Back 16

Decreases in the original sales price.

Front 17

Markdown Cancellations

Back 17

Occur when the markdowns are later offset by increases in the prices of goods that the retailer had marked down.

Front 18

Markup

Back 18

An additional markup of the original retail price.

Front 19

Markup Cancellations

Back 19

Decreases in prices of merchandise that the retailer had marked up above the original retail price.

Front 20

Net Realizable Value (NRV)

Back 20

Refers to the net amount that a company expects to realize from the sale of inventory.

Front 21

Net Realizable Value Less a Normal Profit Margin

Back 21

Lower limit (floor).

Front 22

Purchase Commitments

Back 22

Agreements to buy inventory weeks, months, or even years in advance.

Front 23

Retail Inventory Method

Back 23

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.

Front 24

Upper Limit (Ceiling)

Back 24

The net realizable value of inventory.