Chapter 10 Flashcards
What type of inventory do retailers and wholesalers usually hold?
Merchandise inventory.
What types of inventory do manufacturing firms report?
Raw materials inventory
Work-in-process inventory
Finished goods inventory
What is the periodic inventory system?
Inventory balance is calculated at the end of an accounting period.
What is the perpetual inventory system?
Inventory is updated for each purchase and sale.
What are goods in transit?
Items that have left the sellers place of business, but have not yet been received by the buyer.
What is FOB shipping point?
The title passes from seller to buyer when the goods are shipped.
The buyer reports the goods in inventory while in transit.
What is FOB destination?
The title passes from seller to buyer when the goods are received by the buyer.
The seller reports the goods in inventory while in transit.
What are freight-in-costs?
Cost incurred to bring the inventory to the appropiate location.
What are freight-out-costs?
Costs incurred by the seller to move the inventory to the buyer.
What is a purchase discount?
Reduces the amount that is due to sellers if the buyer pays within a certain time period.
The gross method records the inventory at full price initially.
The net method assumes you will take the discount.
What is the specific identification method?
A company identifies each unit and tracks the cost associated with that unit.
Used for high dollar, unique items.
What is FIFO?
First-in-First-Out
Company will get rid of the oldest inventory on a sale.
Assigns the most recent costs to ending inventory and oldest costs to COGS.
What is LIFO?
Last-in-First-Out
Company will get rid of the newest inventory on a sale.
Assigns the oldest costs to ending inventory and most recent costs to COGS.
What is the lower-of-cost-or-market rule?
Requires that if a measure of the market value of inventory falls below its cost basis, the company must report inventory at the lower of its cost or market value.
NRV formula:
Items selling price minus the cost of disposal.
