Chapter 6

Question 1

The principle that states a business should use the same accounting methods and procedures from period to period

Answer 1

Consistency principle

Question 2

Principle that states a business’ financial statements must report enough information for outsiders to make knowledgeable decisions about the company

Answer 2

disclosure principle

Question 3

Term that states a company must perform strictly proper accounting only for items that are significant to the business’ financial situation

Answer 3

materiality concept

Question 4

Term that states a business should report the least favorable figures in the financial statements

Answer 4

Conservatism

Question 5

A method of approximating the flow of inventory costs in a business that used to determine the amount of cost of goods sold and ending merchandise inventory

Answer 5

Inventory costing method

Question 6

What are the four main inventory costing methods

Answer 6

1. Specific Identification
2. First-in first-out
3. Last-in first-out
4. Weighted average

Question 7

An inventory costing method based on the specific cost of particular units. Good for businesses that sell easily identified/unique goods

Answer 7

Specific Identification method

Question 8

An inventory costing method in
which the first costs into inventory
are the first costs out to cost of
goods sold. Ending inventory is
based on the costs of the most
recent purchase

Answer 8

First-In First out

Question 9

The total spent on inventory that was available to be sold during a period

Answer 9

Cost of goods available for sale

Question 10

An inventory costing method in
which the last costs into inventory
are the first costs out to cost of
goods sold. The method leaves the
oldest costs—those of beginning
inventory and the earliest purchases
of the period—in ending inventory

Answer 10

Last-in, First-out method

Question 11

An inventory costing method based
on the weighted-average cost per
unit of inventory that is calculated
after each purchase. Weighted-average cost per unit is determined
by dividing the cost of goods
available for sale by the number of
units available

Answer 11

Weighted-average method

Question 12

Rule that merchandise inventory
should be reported in the financial
statements at whichever is lower—
its historical cost or its market value.

Answer 12

Lower-of-cost-or-market rule

Question 13

Measures the number of times
a company sells its average level
of merchandise inventory during
a period. What is the formula

Answer 13

Inventory turnover
Cost of goods sold /
Average merchandise inventory.

Question 14

Measures the average number
of days that inventory is held by
a company. 365 days / Inventory
turnover

Answer 14

Days’ Sales in Inventory
365 days / Inventory
turnover