Chapter 10: Inventories Flashcards
To define Inventories. To identify the major classes of inventory To account for inventory transactions using periodic and pertual inventory system. To know the gross method and net method of recording purchases. To identify the items included in inventory cost.
Are assets held for sale in the ordinary course of business
Inventories
Classes of inventories
- Inventories of trading Concern
- Inventories of manufacturing concern
Encompasses goods purchased and held for resale
Inventories
Is one that buys and sells goods in the same form purchased.
Trading concern
Is one that buys goods which are altered or converted into another form before they are made available for sale.
Manufacturing concern
Are completed products which are ready for sale.
Finished Goods
Are partially completed products which are require further process or work before they can be sold
Goods in process or work in process
Are goods that are to be used in the production process.
Raw Materials
Are similar to raw materials but their relationship to the end product is indirect. May be referred to as “Indirect Materials”.
Factory or manufacturing supplies
Freight charge that is paid already
Freight Prepaid
Freight charge that is not yet paid
Freight collect
T/F
A seller who ships FAS (free alongside) must bear the expenses in delivering the Goods to the dock
True
Receipt of the goods. The Seller shall be responsible for freight charges.
FOB destination
Upon shipment of the goods. The Buyer shall be responsible for freight charges.
FOB shipping point
Calls for the physical counting of goods on hand at the end of the accounting period to determine quantities.
Periodic System
3 Maritime Shipping Terms
- Free Alongside
- Cost, insurance and freight
- Ex-ship
(For #’s 16 - 21) - Journal Entries_Periaodic System
Purchase of Merchandise on Account
Purchases
Accounts Payable
Payment of freight on the purchase
Freight in
Cash
Return of merchandise purchased to supplier
Accounts Payable
Purchase Returns
Sale of merchandise on account
Accounts Receivable
Sales
Return of merchandise sold from customer
Sales return
Accounts receivable
Adjustment on ending inventory
Merchandise inventory-end
Income Summary
Requires the maintenance of records called stock cards that usually offer a running summary of the inventory inflow and outflow.
Perpetual System
T/F
Inventories are presented as one-line item in SFP and all the details of inventory are disclosed in the notes of financial statements.
True
For #’s 27-33 - Journal Entry (Perpetual System)
Adjustment of ending Inventory
No Entry
Purchase of Merchandise on Account
Merchandise Inventory
Accounts Payable
Payment of freight on the purchase
Merchandise Inventory
Cash
Return of merchandise purchased to supplier
Accounts Payable
Merchanise Inventory
Sale of merchandise on account
Accounts Receivable
Sales
Return of merchandise sold from customer
Sales
Accounts Receivable
Merchandise Inventory
Cost of Goods Sold
Is usually closed to COGS because this is often the result of normal shrinkage and breakage in inventory
Inventory shortage
T/F
Abnormal and material shortage shall be separately classified and presented as other expenses
True
T/F
Abnormal and material shortage shall be separately classified and presented as other expenses
True
Are deductions from the list or catalog price in order to arrive at the invoice price which is the amount actually charged to the buyer.
Trade Discounts
Are deductions from price when payment is made within the discount period.
Cash Deductions
Cash discounts are recorded as ____________ by the buyer and ___________ by the seller.
Purchase Discount
Sales Discount
T/F
Trade discounts are recorded
False
The debit balance of Inventory is 65,000. The physical count shows an inventory of 55,000 on hand.
Inventory Shortage 10,000
Merchandise Inventory 10,000
The debit balance of Inventory is 65,000. The physical count shows an inventory of 75,000 on hand.
Inventory Overage 10,000
Merchandise Inventory 10,000
