Term
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Definition
items held for sale or:
goods to be used in the production of goods to be sold. |
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Term
| What are the two businesses with inventory? |
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Definition
| Merchandisor ( 1 ) manufacturer ( 3 ) |
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Term
| What kind of inventory does wal mart have? |
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Definition
One inventory account
purchase goods ready for sale |
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Term
| What kind of inventory does caterpillar use? |
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Definition
| three accounts, raw materials, work in process, finished goods. |
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Term
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Definition
| beginning inventory and cost of goods purchased flows into cost of goods available for sale, which flows into cost of goods sold and ending inventory. |
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Term
| Companies use two types of inventory for maintaining inventory, what are they? |
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Definition
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Term
| What is the perpetual inventory system? |
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Definition
1.) purchases of mechandise are debited to inventory.
2.) Freight ins is debited to inventory. purchase returns and allowances and purchase discounts are credited to inventory.
3.) Cost of goods sold is debited and inventory is credited for each sale.
4.) subsidiary records show quantity and cost of each type of inventory on hand.
The perpetual inventory system provides a continuous record of inventory and cost of goods sold. |
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Term
| what is the periodic system? |
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Definition
1.) purchases of merchandise are debited to purchases.
2.) Ending inventory is determined by a physical count.
3.)the calculation for cost of goods sold is:
beginning inventory - purchases = goods available for sale. goods available for sale less ending inventory is cost of goods sold |
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Term
| Under inventory issues, what is inventory control? |
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Definition
Inventory control - all companies need periodic verification of the inventory records by actual count, weight, or measurement, with the counts compared with the detailed inventory records.
Companies should take the physical inventory near the end of their fiscal year, to properly report inventory quantities in their annual accounting reports. |
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Term
| What are some basic issues in inventory valuation? |
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Definition
| valuation- companies must allocate the cost of all the goods available for sale ( or use ) between the goods that were sold or used and those that are still on hand. |
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Term
| valuation requires determining |
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Definition
1.) the physical goods ( goods on hand, goods in transit, consigned goods, special sales agreements)
2.) the costs to include ( product vs. period costs )
3.) the cost flow assumption ( FIFO, LIFO, average cost, specific identification, retail, etc ) |
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Term
| A company should record purchases when it |
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Definition
| obtains legal title to the goods. |
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Term
| what is FOB shipping point? |
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Definition
| inventory is buyer's when recieved except :buyers at time of delivery to common carrier. |
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Term
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Definition
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Term
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Definition
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Term
| sales with high rates of returns |
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Definition
| buyers, if you can estimate returns |
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Term
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Definition
| buyers if you can estimate collectibility. |
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Term
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Definition
| costs directly connected with bringing the goods to the buyer's pace of business and converting such goods to a salable condition. |
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Term
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Definition
| generally selling, general, and administrative expenses. |
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Term
| what are purchase discounts? |
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Definition
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Term
| what are the three costs included in inventory? |
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Definition
| product, period, and discounts. |
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Term
| What are the four cost methods? |
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Definition
| FIFO, LIFO, average cost, specific identification |
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Term
| the cost flow assumption adopted does not |
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Definition
| need to equal the physical movement of goods. |
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Term
| Which method should be adopted. |
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Definition
| method adopted should be one that most clearly reflects periodic income. |
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Term
| Many companies use LIFO for: |
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Definition
| tax and external financial reporting purposes |
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Term
| Many companies use FIFO, average cost, or standard cost system for : |
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Definition
| internal reporting purposes. |
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Term
| What are some reasons that companies use FIFO? |
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Definition
1.) pricing decisions
2.) record keeping easier
3.) profit sharing or bonus arrangements
4.) LIFO troublesome for interim periods. |
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Term
| What is the LIFO reserve? |
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Definition
| the LIFO reserve is the difference between the inventory method used for internal reporting purposes and LIFO. |
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Term
| What is the journal entry to reduce inventory to LIFO? |
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Definition
| debit COGS, credit allowance to reduce inventory to LIFO |
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Term
| companies should disclose either the: |
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Definition
| LIFO reserve or the replacement cost of the inventory. |
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Term
| What is LIFO liquidation? |
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Definition
| Older , low cost inventory is sold resulting in a lower cost of goods sold, higher net income, and higher taxes. |
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Term
| What is dollar value lifo? |
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Definition
| Changes in a pool are measured in terms of total dollar value, not physical quantity. |
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Term
| What are the advantages of dollar value LIFO? |
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Definition
broader range of goods in pool.
permits replacement of goods that are similiar.
helps protect LIFO layers from erosion |
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Term
| What are some key facts about specific goods lifo approach? |
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Definition
costing goods on a unit basis is expensive and time consuming
specific goods pooled LIFO approach
reduces record keeping and clerical costs, makes it more difficult to erode the layers. Using quantitities as measurement basis can lead to untimely LIFO liquidations |
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Term
| What is dollar value LIFO? |
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Definition
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Term
| What are some advantages and disadvantages of LIFO? |
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Definition
advantages = matching, improved tax benefits/ improved cash flow, and future earnings hedge.
disadvantages include: reduced earnings, inventory understated, physical flow, involuntary liquidation/ poor buying habits. |
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Term
| LIFO is generally preferred: |
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Definition
1.) if selling prices are increasing faster than costs and
2.) if a company has a fairly constant base stock |
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Term
| LIFO is not appropriate if : |
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Definition
prices tend to lag behind costs,
if specific identification traditionally used, and
when unit costs tend to decrease as production increases. |
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