CHAPTER 12- INVENTORIES AND COST OF GOODS SOLD Flashcards
Transactions in which sales of merchandise are billed to customers prior to
delivery, with the goods being held by the seller. These transactions may overstate revenues and net
income if they do not meet specific requirements for recognition as sales.
Bill and hold
A document issued by a common carrier acknowledging the receipt of goods and
setting forth the provisions of the transportation agreement.
Bill of lading
A transfer of goods from the owner to another person who acts as the sales agent
of the owner.
Consignment
A five-member board established by Congress to narrow
the options in cost accounting that are available under generally accepted accounting principles.
Companies having significant supply contracts with certain U.S. government agencies are subject to the
cost accounting standards established by the board.
Cost Accounting Standards Board
A system in which data are exchanged electronically
between the computers of different companies. In an EDI system, source documents are replaced with
electronic transactions created in a standard format.
Electronic data interchange (EDI)
A document designed to accumulate the labor and machine time devoted to a
particular production order.
Job time tickets
Reviews conducted by management of estimates and other
kinds of financial information for reasonableness. They often involve the use of significant judgment,
knowledge, and experience in comparing recorded amounts with expectations of the reviewers. They
often are considered monitoring controls but may relate to any of the other COSO components that
have the common characteristic of management review of information to identify misstatements or
breakdowns in other controls.
Management Review Controls
A schedule that is used to plan overall production for a period of
time. The schedule illustrates the gross production of each of the company’s products
Master production schedule
The auditors’ evidence-gathering technique of viewing a client activity to obtain
physical evidence of performance.
Observation
A method of accounting in which inventories are determined solely
by means of a physical inventory at the end of the accounting period.
Periodic inventory system
A method of accounting for inventories in which controlling
accounts and subsidiary ledgers are maintained to record receipts and issuances of goods, both in
quantities and in dollar amounts. The accuracy of perpetual inventory records is tested periodically by
physical inventories.
Perpetual inventory system
A document that authorizes the production of a specific quantity of a product.
Production order
A contractual obligation to purchase goods at fixed prices, entered into
well in advance of scheduled delivery dates.
Purchase commitment
A contractual obligation to sell goods at fixed prices, entered into well in
advance of scheduled delivery dates.
Sales commitment
A person possessing special skill or knowledge in a field other than accounting or
auditing, such as a real estate appraiser.
Specialist
