Chapter 6 Flashcards
Consignor
Owner of the goods that are on consignment
Consignee
Another party that is selling the goods for the owner
*Never reports goods as inventory
Net realizable value equation
Sales price - cost of making the sale
Goods that are sold at a lower price point because they are damaged or obsolete
Ending merchandise equation (to determine inventory costs)
Number of units on hand x unit cost
Cost of goods sold equation (to determine inventory costs)
Number of units sold x unit cost
Specific identification method
Used for one of a kind inventory (I.e. automobiles, jewelry, real estate)
FIFO
Cost of goods sold is based on the oldest units
Ending inventory closely reflects current replacement cost
LIFO
Cost of goods sold closely reflects the current replacement cost
Ending inventory contains the oldest units
Weighted average equation
Cost of goods available for sale / number of units available for sale
Rising costs effects on cost of goods and gross profit/net income (FIFO and LIFO)
FIFO - cost of goods will be lower so higher gross profit/net income
LIFO - cost of goods will be higher so lower gross profit/net income
LCM: When market value is lower than cost value =
A loss is recorded
LCM: When market value is higher than cost value =
No adjustment is made
Financial Statements: If ending inventory is understated…
Cost of goods inventory is overstated and net income is understated
Financial Statements: If ending inventory is overstated…
Cost of goods inventory is understated and net income is overstated
Balance Sheet: If ending inventory is understated…
Assets and equity are understated
