chapter 6

Question 1

consistency principle

Answer 1

A business should use the same accounting methods and procedures from period to period.

Question 2

cost of goods available for sale

Answer 2

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

Question 3

lower of cost or market rule (LCM)

Answer 3

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

Question 4

conservatism

Answer 4

A business should report the least favorable figures in the financial statements when two or more possible options are presented

Question 5

days’ sales in inventory

Answer 5

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

Question 6

specific identification method

Answer 6

An inventory costing method based on the specific cost of particular units of inventory

Question 7

inventory costing method

Answer 7

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

Question 8

last in, first out, (LIFO) method

Answer 8

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.

Question 9

materiality concept

Answer 9

A company must perform strictly proper accounting only for items that are significant to the business’s financial situation

Question 10

weighted-average method

Answer 10

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

Question 11

disclosure principle

Answer 11

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

Question 12

inventory turnover

Answer 12

Measures the number of times a company sells its average level of merchandise inventory during a period. Cost of goods sold / Average merchandise inventory

Question 13

first in, first out (FIFO) method

Answer 13

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 purchases.