Chapter 6 Flashcards
How does periodic accounting differ from perpetual accounting?
Periodic waits until the end of the term to configure the cost of goods sold.
What does LIFO mean?
&
FIFO
Last in first out
First in first out
Why does the periodic system account for inventory?
- ) determine the inventory on hand
2. ) determine the cost of goods sold for the period.
Why does the perpetual system account for inventory?
- ) Check accuracy of inventory records
2. ) Determine the inventory on lost due to wasted raw materials, shoplifting, or employee theft.
Goods in transit are accounted for by the buyer when goods are?
FOB Shipping point.
How should goods on consignment be delt with?
They shouldn’t be accounted for in the inventory.
How should goods that are FOB destination be delt with in inventory for the buyer?
They should be counted until they arrive.
Cost includes all expenditures….?
necessary to acquire goods and place them in a condition ready for sale.
What are all the cost flow assumptions?
Specific identification
FIFO
LIFO
Average cost.
What are the most common cost flow assumptions?
- ) FIFO: 45%
- ) LIFO: 24%
- ) Average cost: 16%
What is the formula for cost of goods sold?
(Beginning Inventory + Purchases) - ending inventory
In a period of inflation which cost flow method is best?
LIFO
Inventory Turnover Ratio?
COGS/ Average Inventory
Days in inventory ratio?
365/ Inventory Turnover ratio
How is LIFO in relation to FIFO when prices are increasing:
(A) Taxes paid
(B) Cash Flows
(C) Quality of earnings
- When prices increase LIFO results in a higher cost of goods sold and lower income.
- Because LIFO is lower in income it is also lower in taxes and therefore has higher cash flows.
- LIFO Increase the quality of earnings ratio when prices increase.
