Term
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Definition
| are asset items that a company holds for sale in the ordinary course of business, or goods that it will use or consume in the production of goods to be sold |
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Term
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Definition
| cost assigned to goods and materials on hang but not yet placed into production; can be traced directly to the end product |
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Term
| work in process inventory |
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Definition
| cost of the raw material for some units that are only partially processed, plus the direct labor cost applied specifically to this material and a ratable share of manufacturing overhead costs |
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Term
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Definition
| costs identified with the completed but unsold units on hand at the end of the fiscal period |
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Term
| perpetual inventory system |
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Definition
- continuously tracks changes in the Inventory account; a company records all purchases and sales (issues) of goods directly in the inventory account as they occur
- provides a continuous record of the balances in both the Inventory account and the Cost of Goods sold account
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Term
| periodic inventory system |
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Definition
- a company determines the quantity of inventory on hand only periodically; records all acquisitions of inventory during the accounting period by debiting the Purchases account
- then adds the total in the purchases account at the end of the accounting period to the cost of the inventory on hand at the beginning of the period; the sum determines the total cost of the goods available for sale during the period
- COGS= then subtracts the EI from the cost of goods available for sale
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Term
| modified perpetual inventory system |
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Definition
| provides detailed inventory records of increases and decreases in quantities only-not dollar amounts; a memorandum device outside the double-entry system, which helps in determining the level of inventory at any point in time |
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Term
| the cost of goods available for sale or use |
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Definition
| sum of the cost of the goods on hand at the beginning of the period and the cost of the goods acquired or produced during the period |
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Term
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Definition
| 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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Term
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Definition
Beginning Inventory, Jan 1
Add: Purchases
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Total cost of goods available for sale
Deduct: Ending Inventory
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Cost of goods sold during the year |
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Term
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Definition
| buyer's at time of delivery to common carrier; buyer assumes risk |
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Term
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Definition
| title passes to buyer only when it receives the goods from the common carrier; seller assumes risk |
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Term
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Definition
| the consignee agrees to accept the goods without any liability, except to exercise due care and reasonable protection form loss or damage, until it sells the goods to a third party; when the consignee sells the goods, it remits the revenue, less a selling commission and expenses incurred in accomplishing the sale, to the consignor. Goods remain the property of the consignor until sold. |
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Term
| product financing arrangement |
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Definition
| an enterprise finances its inventory without reporting either the liability or the inventory on its balance sheet, usually involves a "sale" wit either an implicit or explicit "buyback" agreement |
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Term
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Definition
| "goods sold on installment" describes any type of sale in which the sale agreement requires payment in periodic installment over an extended period of time; the seller should exclude the goods from its inventory if it can reasonably estimate the percentage of bad debts |
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Term
| Understated ending inventory |
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Definition
| working capital and the current ratio are understated. if cost of goods sold is overstated, then net income is understated |
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Term
| overstated ending inventory |
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Definition
| inventory, working capital, current ratio, and net income are overstated and cost of goods sold is understated |
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Term
| understatement of goods from purchases and inventory |
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Definition
| results in an understatement of inventory and accounts payable in the balance sheet; an understatement of purchases and ending inventory in the income statement |
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Term
| overstate purchases and ending inventory |
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Definition
| overstate inventory and accounts payable, and understate the current ratio |
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Term
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Definition
| those costs that "attach" to the inventory; directly connected with bringing the goods to the buyer's place of business and converting such goods to a salable condition |
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Term
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Definition
| costs that are indirectly related to the acquisition or production of goods |
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Term
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Definition
| calls for identifying each item sold and each item in inventory; includes in cost of goods sold the costs of the specific items sold; it includes in inventory the costs of the specific items on hand |
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Term
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Definition
| prices items in the inventory on the basis of the average cost of all similar goods available during the period |
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Term
| FIFO (first-in, first-out) method |
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Definition
- assumes that a company uses goods in the order in which it purchases them; the first goods purchased are the first used
- with rising prices: highest gross profit, highest EI, lowest COGS, highest NI
- FIFO perpetual=FIFO periodic
- EI is close to current cost
- fails to match current costs against current revenues on the I/S
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Term
| LIFO (last-in, first-out) method |
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Definition
- matches the cost of the last goods purchased against revenue
- use LIFO for tax and external reporting purposes
- doesn't have good valuation of EI
- current costs matched with current revenues
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Term
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Definition
| leads to a distortion in net income and increased taxable income in the current period |
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Term
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Definition
- determines and measures any increases and decreases in a pool in terms of total dollar value, not the physical quantity of the goods in the inventory pool
- may include a broader range of goods
- permits replacement of goods that are similar items, similar in use, or interchangeable
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Term
| Price Index for current year |
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Definition
Ending inventory for the period at current cost
ending inventory for the period at Base-year cost |
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Term
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Definition
| if a company uses LIFO for tax purposes, it must also use LIFO for financial accounting purposes |
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