Chapter 6 Terms Flashcards
Consigned goods
Goods held for sale that belong to another party. The party holding the goods is called the consignee, and the party that owns the goods is called the consignor.
Days sales in inventory
A liquidity measure of the average number of days that inventory is held. It is calculated as 365 days divided by the inventory turnover ratio.
First-in, first-out (FIFO) cost formula
An inventory cost formula that assumes that the costs of the earliest (oldest) goods purchased are the first to be recognized as the cost of goods sold. The costs of the latest goods purchased are assumed to remain in ending inventory.
Gross profit method
A method for estimating the cost of the ending inventory by applying the gross profit margin to sales.
Internal control
The 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.
Inventory turnover
A liquidity measure of the number of times, on average, that inventory is sold during the period. It is calculated by dividing cost of goods sold by average inventory. Average inventory is calculated by adding beginning inventory and ending inventory balances and dividing the result by two.
Lower of cost and net realizable value (LCNRV)
A basis for stating inventory at the lower of its original cost and the net realizable value at the end of the period.
Net realizable value (NRV)
The selling price of an inventory item, less any estimated costs required to make the item saleable
Retail inventory method
A method for estimating the cost of the ending inventory by applying a cost-to-retail ratio to the ending inventory at retail prices
Specific identification
An inventory costing method used when goods are distinguishable and not ordinarily interchangeable. It follows the actual physical flow of goods and items are specifically costed to arrive at the cost of goods sold and the cost of the ending inventory
Weighted average cost formula
An inventory cost formula that assumes that the goods available for sale are homogeneous or non-distinguishable. The cost of goods sold and the ending inventory are determined using a weighted average cost, calculated by dividing the cost of the goods available for sale by the units available for sale
Weighted average unit cost
The average cost of inventory weighted by the number of units purchased at each unit cost. It is calculated by dividing the cost of goods available for sale by the number of units available for sale.
