Accounting: Chapter 7: Vocab

Question 1

average inventory cost flow method

Answer 1

The method of inventory costing that is based on the assumption that costs should be charged against revenue by using the weighted average unit cost of the items sold.

Question 2

consigned inventory

Answer 2

Merchandise that is shipped by manufacturers to retailers who act as the manufacturer’s selling agent.

Question 3

consignee

Answer 3

The name for the retailer in a consigned inventory arrangement.

Question 4

consignor

Answer 4

The name for the manufacturer in a consigned inventory arrangement.

Question 5

first-in, first-out (FIFO) inventory cost flow method

Answer 5

The method of inventory costing based on the assumption that the costs of merchandise sold should be charged against revenue in the order in which the costs were incurred.

Question 6

gross profit method

Answer 6

A method of estimating inventory cost that is based on the relationship of gross profit to sales.

Question 7

inventory turnover

Answer 7

The relationship between the volume of goods sold and inventory, computed by dividing the cost of goods sold by the average inventory.

Question 8

last-in, first-out (LIFO) inventory cost flow method

Answer 8

A method of inventory costing based on the assumption that the most recent merchandise inventory costs should be charged against revenue.

Question 9

lower-of-cost-or-market (LCM) method

Answer 9

A method of valuing inventory that reports the inventory at the lower of its cost or current market value (replacement cost).

Question 10

net realizable value

Answer 10

The estimated selling price of an item of inventory less any direct costs of disposal, such as sales commissions.

Question 11

number of days’ sales in inventory

Answer 11

The relationship between the volume of sales and inventory, computed by dividing the inventory at the end of the year by the average daily cost of goods sold.

Question 12

physical inventory

Answer 12

A detailed listing of merchandise on hand.

Question 13

purchase order

Answer 13

The purchase order authorizes the purchase of the inventory from an approved vendor.

Question 14

receiving report

Answer 14

The form or electronic transmission used by the receiving personnel to indicate that materials have been received and inspected.

Question 15

retail inventory method

Answer 15

A method of estimating inventory cost that is based on the relationship of gross profit to sales.

Question 16

specific identification inventory cost flow method

Answer 16

Inventory method in which the unit sold is identified with a specific purchase.

Question 17

subsidiary inventory ledger

Answer 17

The subsidiary ledger containing individual accounts for items of inventory.