Chapter 10 - Inventories Flashcards
What are the two classes of inventories?
Inventories of a trading concern and inventories of manufacturing concern
What is a trading concern or merchandising inventory?
buys and sell
What is a manufacturing concern?
buys goods which are altered or converted for sale
Completed products which are ready for sale
Finished Goods
Partially completed products
work in process/goods in process
Goods that are to be used in the production process and can be traced directly to the end product
raw materials
What goods shall be included in inventory?
All goods to which an entity has title. As long as the entity is the owner of the goods to be inventories, the goods shall be included in the inventory.
Identify the owner of the inventory in transit and ownership transfer.
FOB Destination
owner of the inventory in transit - seller
ownership transfer - upon receipt of the goods by the buyer
Identify the owner of the inventory in transit and ownership transfer.
FOB Shipping Point
owner of the inventory in transit - buyer
ownership transfer - upon shipment of the goods
Identify the owner of the inventory in transit and ownership transfer.
Free Alongside (FAS)
owner of the inventory in transit - seller up to alongside
ownership transfer - alongside the carrier
Identify freight term.
The freight charge is actually paid by the buyer
Freight collect
Identify freight term.
The freight charge is already paid by the seller
Freight prepaid
FOB Destination and FOB Shipping Point determine ____ of the goods and the party who is supposed to pay.
Freight Collect and Freight Prepaid determine the party who ____ ___ the freight charge but not the party who is supposed to legally pay.
ownership
actually paid
Who is the owner of the consigned goods?
The consignor, thus it the inventory must be included in the consignor’s inventory
What is the presentation of inventories in the financial statement?
as one line item in the statement of financial position but the details shall be disclosed in the notes to financial statements.
What are the two systems of accounting inventories?
Periodic system ad Perpetual system
The system that calls for the physical counting of goods on hand at the end of the period.
This approach gives actual or physical inventory.
COGS is computed only at the end of the period.
periodic system
The system that requires the keeping of stock cards.
This approach gives book or perpetual inventory.
COGS is computed at the time of every sale.
perpetual inventory system
physical count of inventory < inventory per book
shortage
Dr. Inventory shortage
Cr. Merchandise inventory
physical count of inventory > inventory per book
overage
Dr. Merchandise Inventory
Cr. Inventory Overage
Discounts deducted from the list or catalog price in order to arrive at the invoice price.
Trade discounts
Discounts deducted from the invoice price when payment is made within the discount period.
Cash/purchase discounts (buyer) or sales discounts (seller)
The cost of inventories comprise:
> cost of purchase
cost of conversion
other cost incurred in bringing the inventories to their present location and condition.
T or F.
The cost of purchase of inventory comprises the purchase price, import duties and recoverable taxes, freight, handling and other costs directly attributable to the acquisition of finished goods, materials, and services.
F - irrecoverable taxes
