Chapter 7 Flashcards
Journal Entries in a Perpetual Inventory System
Acquisition and Returns
DR Inventory
Cr. Accounts payable
Sale
DR Accounts receivable
CR Sales
DR Cost of goods sold
DR Inventory
Journal Entries in a Periodic Inventory System
Acquisition and Returns
DR Purchases
Cr Accounts payable
DR Accounts payable
CR Purchase returns
Sale
DR Accounts receivable
CR Sales
Closing
DR Inventory (physical count)
DR Cost of goods sold (difference)
CR Purchases (total amount for period) CR Inventory (beginning balance)
Define Specific Identification
requires determining which specific items are sold and therefore reflects the actual physical flow of goods. It can be used for special inventory items, such as automobiles or heavy equipment.
moving-average method
is used only in a perpetual system
The weighted-average method is used under
periodic inventory accounting system
LIFO Conformity Rule
An IRS regulation requires LIFO to be used for financial reporting if it is used in the tax return.
LIFO Valuation Allowance
a contra account used to true up the LIFO inventory account at year end.
Is LIFO allowed in iFRS?
no.
An advantage of FIFO
is that ending inventory approximates the market value
A disadvantage of FIFO
is that current revenues are matched with older costs
In a time of rising prices (inflation), use of the LIFO method results
the lowest year-end inventory, the highest cost of goods sold, and the lowest gross profit.
Calculate dollar value life price index
current inventory costs/base year inventory costs
Inventory accounted for using LIFO or the retail inventory method is measured at
the lower of cost or market (LCM)
Inventory accounted for using any other cost method (e.g., FIFO or average cost) is measured at
the lower of cost or net realizable value.
he loss on write-down of inventory to market or net realizable value (NRV) generally is presented as
component of cost of goods sold. However, if the amount of loss is material, it should be presented as a separate line item in the current-period income statement.
Can you reverse a write down in inventory in an annual financial statement
No, once inventory is written down below cost, the reduced amount is the new cost basis.
how do you measure inventory in IFRS
lower of cost or net realizable value
When ending inventory is overstated, cost of goods sold
will be understated
When beginning inventory is understated, cost of goods sold
will be understated
Is estimated gross profit method used for intern reporting or year end reporting?
interm
During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which inventory cost flow methods
FIFO
