Ch 7 Valuation of Inventories: A Cost-Basis Approach Flashcards
a cost flow assumption that tracks inventory items on the basis of the average cost of all similar goods available during the period
average-cost method
products that are delivered by a consignor (the owner) to a consignee (the agent) for the purpose of sale, storage, or shipment, without transferring the legal ownership of the goods
consigned goods
the sum of (1) the cost of goods on hand at the beginning of the period, and (2) the cost of the goods acquired or produced during the period
cost of goods available for sale
the difference between (1) the cost of goods available for sale during the period, and (2) the cost of goods on hand at the end of the period
cost of goods sold
overcomes the problems of redefining pools and eroding layers
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
dollar-value LIFO
the desired approach which consists of pricing ending inventory at the most current cost
the value of the units in inventory is extended at both base-year prices and current-year prices
double-extension method
this account includes the costs identified with the completed but unsold units on hand at the end of the fiscal period
finished goods inventory
the cost flow assumption that assumes that a company sells goods in the order in which it purchases them
first-in, first-out (FIFO) method
title of ownership passes to buyer only when the buyer receives the goods from the common carrier i.e. upon delivery
f.o.b. destination
title of ownership passes to buyer when the supplier delivers goods to the common carrier i.e. when its loaded on the shipping truck
f.o.b. shipping point
a method that records the purchases and accounts payable at the invoice price
gross method
asset items that a company holds for sale in the ordinary course of business
inventories
the cost flow assumption that matches the cost of the last goods purchased against revenue
last-in, first-out (LIFO) method
the change in the allowance balance from one period to the next
LIFO effect
when older inventory is matched with current revenues which distorts net income and leads to substantial tax payments
when a company sells the most recently acquired inventory first
LIFO liquidation
the allowance account is called the Allowance to Reduce Inventory to LIFO account, also referred to as the ____
LIFO reserve
the cost assigned to unsold units left on hand
the value of goods in stock, whether it’s finished goods or raw materials that are ready to sell, that are intended to be resold to customers
merchandise inventory
when using the perpetual inventory method, companies use ____ since the inventory account is continuously updated for purchases of inventory, the average inventory cost will change each time a purchase is made
moving-average method
a method that recognizes the purchases and related accounts payable at the invoice price less the cash discount
net method
costs that are indirectly related to the acquisition of goods and are generally more difficult to assign to specific inventory items
period costs
under this system, a company determines the quantity of inventory on hand only periodically
periodic inventory system
this system continuously tracks changes in the Inventory account i.e. records all purchases and sales of goods directly in the Inventory account as they occur
perpetual inventory system
costs that are directly connected with bringing inventory to the buyer’s place of business and converting the goods to a salable condition
product costs
a deduction that a company may receive if the supplier offers it and the company pays the supplier’s invoice within a specified period of time
purchase discounts
this account represents the cost of goods and materials on hand but not yet placed into production
raw materials inventory
this method usually results in fewer LIFO liquidations
specific-goods pooled LIFO approach
a cost flow assumption that calls for identifying the specific cost of each item sold and each item left in inventory
specific identification
an inventory costing method that assigns average costs to each piece of inventory when it is sold during the year
weighted-average method
this account represents the cost of raw material for these unfinished units, plus the direct labor cost applied specifically to this material and a ratable share of manufacturing overhead costs
work in process inventory
inventory adjustment: LIFO inventory + LIFO reserve
= FIFO inventory
