Chapter 7 Flashcards
inventory
stuff a business sells
inventory controls
- control ordering and acceptance of inventory (purchase orders)
- establish physical controls over inventory
- periodically take physical count of inventory
- record damaged goods
- record sales
- confirm shipping
- keep source documents
Inventory Costs
interest or operating costs
storage and handling costs
taxes, insurance, and shrinking costs
transportation costs
purchase cost
Ending merchandise Inventory
Number of units on hand * Unit cost
COGS
Cost of Goods Sold
Cost of goods sold
units sold * cost
Inventory Costing Methods
- Specific-Identification
- First-in, First-out (FIFO)
- Last-in, First-out (LIFO)
- Average Cost
Which of the following inventory costing methods is used least?
Specific Identification
specific identification costing
based on the cost of a specific unit of inventory
specific identification costing is best for
things like cars, jewelry, real estate
FIFO
First in first out
FIFO Costing
First purchase= first COGS
COGAFS
Cost of goods available for sale
COGAFS =
Beginning Inventory + Purchases
LIFO
Last in first out
LIFO Costing
Last purchase = first Cogs
weighted average costing
uses weighted average cost per unit, calculated after every purchase
weighted average=
COGAFS/ # units available
costing methods on income statements
SPID- exact
FIFO- low cost high profit
LIFO-high cost low profit
Weighted- between FIFO/LIFO
FIFO looks good during
inflation periods by increasing profit
LIFO looks good for
tax purposes, as it reports a lower income and cash on hand
Inventory Costing on the balance sheet
SPID- inventory
& COGS are exact
FIFO Inventory appears more valuable, COGS is lower
LIFO Inventory appears less valuable and COGS is higher
W/A Shows a neutral figure between LIFO/FIFO
