Chapter 5 Power Point

Question 1

In Transit is…

Answer 1

recorded as inventory if you have ownership

Question 2

FOB Shipping Point

Answer 2

• Manufacturer is not responsible for item after leaving their hands
• The buyer is responsible while item is in transit
• Buyer pays for shipping
• Sellers like this one best*

Question 3

FOB Destination

Answer 3

• Manufacturer is responsible for the item until it is in the buyer’s hands
• Seller is responsible for shipping cost
• Buyers like this one best*

Question 4

Consignor

Answer 4

Owns and reports the inventory

Question 5

Consignee

Answer 5

Possesses and sells the inventory

Question 6

Consignment

Answer 6

One party sells goods for another party (owner)

example: Pawn Shop workers

Question 7

Damages/Obsolete

Answer 7

• Recognize item at net realizable value

- If an item can not be sold, written off

Question 8

Physical Counts

Answer 8

• At least done annually
• Unconnected counters
• Two counters for each item
• Inventory counts are recorded on renumbered tickets
• Companies usually hire outside people to do the counting*

Question 9

Shrinkage

Answer 9

Debit cost of goods sold

Credit inventory

Question 10

First-In, First-out

Answer 10

Inventory is sold in the order it is received:
-Older items = cost of goods sold
-Newest items = ending inventory
Rising prices:
-FIFO = Higher Net Income
Falling prices:
-FIFO = Lower Net Income
Example: Jewel or any produce store