Chapter 6 Flashcards
Physical Inventory
companies count their entire inventory at least once a year –> whether they are using a perpetual or a periodic inventory system.
PERPETUAL INVENTORY SYSTEM
the accounting records continuously—show the amount of inventorythat SHOULD be on hand –> not necessarily the amountthat actually is on hand.
periodic inventory system
inventory quantities are not continuously updated
Physical Inventory
actually counting, weighing, or measuring each kind of inventory on hand
-enormous task
Internal Control
process designed and implemented by management to help the company achieve reliable financial reporting, effective and efficient operations, and compliance with relevant laws and regulations.
Consigned Goods
For some businesses, it is customary to hold goods belonging to other parties and to sell them, for a fee – w/out ever taking ownership of the goods
Perpetual inventory system
the cost of inventory items on hand and the cost of items that are sold are continuously updated
Periodic inventory system
costs are assigned to items still on hand at the end of period and cost of goods sold is calculated.
Specific Identification Method
tracks the actual physical flow (movement) of the goods in a perpetual inventory system
—>Each item of inventory is marked, tagged, or coded with its specific unit cost.
Example: Jewellery
Unique: artistic work; furniture
Specific: car parts
FIFO
the cost of the first item purchased is assigned to the cost of the first item sold.
Weighted Average
the cost is determined using an average of the cost of the items purchased.
Cost formulas - Perpetual Inventory System
the cost of goods sold is determined as each item is sold.
Cost formulas - Periodic Inventory System
the cost of goods available for sale (beginning inventory plus the cost of goods purchased) –> is allocated to ending inventory and to cost of goods sold at the end of the period.
Cost of goods sold
Ending inventory - cost of goods available for sale
