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Financial Accounting
Chapter 7
18
Accounting
Undergraduate 2
06/30/2009

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Term
Inventory
Definition
Tangible property held for sale in the normal course of business or used in producing goods or services for sale
Term
Merchandise Inventory
Definition
Goods held for resale in the ordinary course of the business
Term
Raw Materials Inventory
Definition
Items acquired for the purpose of processing into finished goods
Term
Work In Progress Inventory
Definition
Goods in the process of being manufactured
Term
Finished Goods Inventory
Definition
Manufactured goods that are complete and ready fo sale
Term
Direct Labor
Definition
The earnings of employees who work directly on the products being manufactured
Term
Factory Overhead
Definition
Manufacturing costs that are not raw material or direct labor costs
Term
Goods Available for Sale
Definition
The sum of the begining inventory and purchases for the period
Term
Specific Identification Method
Definition
Identifies the cost of the specific item that was sold
Term
First in First out Method
Definition
Assumes that the first goods purchased are the first goods sold
Term
Last in First out Method
Definition
The most recently purchased units are sold first
Term
Average Cost Method
Definition
Uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory
Term
Lower of Cost or Market
Definition
A valuation method departing from the cost principle; it serves to recognize a loss when replacement cost or net realizable value drops below cost
Term
Replacement Cost
Definition
The current purchase price for identical goods
Term
Net Realizable Value
Definition
The expected sales price less selling costs
Term
LIFO Reserve
Definition
a contra-asset for the excess of FIFO over LIFO inventory
Term
Perpetual Inventory System
Definition
A detailed inventory record is maintained, recording each purchase and sale during the accounting period
Term
Periodic Inventory System
Definition
Ending inventory and cost of goods sold are determined at the end of the accounting period based on a physical count
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