Chapter 10 -Inventories Flashcards
They are the assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services.
Inventories
It encompasses goods purchased and held for resales such as the merchandise purchased by a retailer and held for resale and land and other property held for resale by a subdivision entity and real estate developer.
Inventories
It also encompasses finished goods produced, goods in the process, and materials and supplies awaiting use in the production process.
Inventories
2 Classes of inventories
- inventories of a trading concern
2. Inventories of a manufacturing concern
What are the inventories of manufacturing concern?
a. Finished goods
b. Good in process
c. Raw Materials
d. Factory supplies
When can the company say the inventory is theirs?
- Goods owned and currently on hand.
- Goods in transit and purchased FOB SHIPPING POINT.
- Goods in transit and sold FOB DESTINATION.
- Goods OUT on consignment.
- Goods in the hands of sales agents that are unsold.
- Goods held by customers on approval or on trial.
The title is passed to the buyer at the time of shipment and the buyer is responsible for the delivery charges
FOB Shipping point
The title is passed to the buyer upon receipt of goods and the seller is responsible for delivery charges
FOB Destination
Freight terms:
This means that the freight charge on the goods shipped is not yet paid - the carrier shall collect from the buyer but the buyer actually paid for it
freight collect
Freight terms :
This means that the freight charge on the goods shipped is already paid by the seller
freight prepaid
It is a method of marketing goods in which the owner called the consignor transfers physical possession of certain goods to an agent called the consignee who sells them on the owner’s behalf.
Consignment
Freight and other handling costs charges are included in the consignment cost
true
Goods out on inventory = company’s inventory
goods held on consignment = inventory of original owner
TRUE
2 systems are offered in accounting for inventories:
Periodic system
perpetual system
It calls for the physical counting of goods on hand at the end of the accounting period to determine quantities.
Periodic system - it gives the actual or physical inventories
It is used when the individual items have small peso investments such s groceries, hardware, and auto parts.
periodic system
It requires the maintenance of records called stock cards that usually offer a running summary of the inventory inflow and outflow.
perpetual system
It is commonly used where the inventory items treated individually represent a relatively large peso investment such as jewelry and cars
perpetual system
They are the 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 discount - not recorded
They are deductions from the invoice price when payment is made within the discount period by the buyer and sales discount by the seller
cash discount
Purchase discount is deducted from purchases to arrive at net purchases and sales discount is deducted from sales to arrive at net sales revenue
TRUE
Inventories shall be recorded at:
- Cost of purchase (purchase price, duties, irrecoverable taxes, freight, and handling)
- Cost of conversion
- Cost related to bringing the inventories items to their present location
Methods of recording purchases
Gross method
net method
The cost measured under ___ method represents the cash equivalent price on the date of payment and therefore the theoretically correct historical cost.
net method
Most entities record purchases at the gross invoice amount
TRUE
gross method violates the ___ principle because discounts are recorded only when taken or when cash is paid rather than when purchases that give rise to the discounts are made.
matching principle
Trade discounts, rebates, and other similar items are deducted in determining the cost of purchase
TRUE
