Term
| Define Cost of Goods Sold |
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Definition
| Cost of inventory sold to customers during a period; aka cost of sales |
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Term
| What happens to a company’s ending inventory for a reporting period immediately in the next period? |
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Definition
| it becomes the beginning inventory for the new period. |
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Term
| How do you calculate cost of goods sold? How do we arrive at goods available for sale? |
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Definition
Beginning inventory
+ Purchases
= Cost of goods available for sale
- Ending inventory
= Cost of goods sold |
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Term
| What is the gross margin ratio? |
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Definition
| Net sales - Cost of goods sold / Net sales |
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Term
| What is the acid-test ratio? |
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Definition
| Cash and cash equivalents + Short-term investments + Current receivables / Current liabilities |
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Term
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Definition
| For a purchase include the amounts and timing of payments from a buyer to a seller. Credit terms usually reflect an industry’s practices. For example, when sellers require payment within 10 days after the end of the month of the invoice date, the invoice will show credit terms as “n/ 10 EOM” aka 10 net days after end of month. |
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Term
| What are goods on consignment? |
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Definition
| Goods on consignment are goods shipped by the owner, the consignor, to another party, the consignee |
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Term
| How does one find goods available for sale? |
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Definition
| Cost of goods sold + ending inventory = cost of goods available for sale |
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Term
| Why are there physical counts of the inventory? |
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Definition
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Term
| What is the principle of consistency? How does it relate to merchandise inventories? |
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Definition
| The idea in accounting that once an accounting method is adopted, it should be followed consistently from one accounting period to the next. If, for any reason, the accounting method is changed, a full disclosure of the change and an explanation of its effects on the items of the financial statements must be given. |
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Term
| What is the inventory turnover ratio? |
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Definition
| Cost of goods sold / Average inventory |
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Term
| How is the “lower of cost or market” used in determining the value of items in inventory? |
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Definition
| Accounting principles require that inventory be reported at the market value of replacing inventory when market value is lower than cost. Merchandise inventory is then said to be reported on the balance sheet at the LCM. |
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