Chapter 6 Flashcards
The accounting principles associated with merchandise inventory are:
Consistency
Disclosure
Materiality
Accounting conservatism
____ states that a business should use the same accounting methods and procedures from period to period.
consistency principle
___ states that financial statements should report enough information for outsiders to make knowledgeable decisions about the company.
disclosure principle
____ states that a company must perform strictly proper accounting only for items that are significant to the business’s financial situation.
materiality concept
_____ means a business should report the least favorable figures in the financial statements when two or more possible options are presented.
conservatism
ending merchandise inventory formula =
number of units ON HAND * unit cost
cost of goods sold formula:
number of units SOLD * unit cost
____ approximates the flow of inventory costs in a business that is used to determine the amount of cost of goods sold and ending merchandise inventory.
inventory costing method
___ is an inventory costing method based on the specific cost of particular units of inventory.
specific identification method
Used for inventories that include:
Automobiles
Jewels
Real estate
____ assumes the first units purchased are the first to be sold.
FIFO
Cost of Goods Sold is based on the oldest purchases.
Ending Inventory closely reflects current replacement cost.
____ is the total cost spent on inventory that was available to be sold during a period.
cost of goods available for sale
the cost of the newest item in inventory is assigned to each unit as Cost of Goods Sold.
LIFO
____ computes a new weighted-average cost per unit after each purchase
weighted average method
weighted average formula:
cost of goods available for sale / number of units available
Cost of Goods Sold is ____ under L I F O than under F I F O when costs are rising.
higher
