Chapter 7: Inventories Flashcards
How is inventory measured under FIFO?
The lower of cost or net realizable value (NRV)
How do you calculate goods available for sale?
Beginning Inventory + Purchases + Freight-in
How do you calculate COGS using gross margin %?
100% - Gross margin % = COGS %
How do you calculate COGS with goods available for sale?
(Goods available for sale) - Ending Inventory
How can you calculate a price index?
Ending inventory at current-year cost/ending inventory at base-year cost
Dividing the ending inventory at current-year cost by the ending inventory at the base-year cost. Base year will always have a 1.0 price index
How do you calculate the cost of goods sold for manufacturer?
Beginning finished goods inventory + Cost of goods manufactured = Goods available for sale - Ending finished goods inventory = COGS
How do you calculate the costs of goods manufactured?
Beginning WIP inventory + Manufacturing costs - Ending WIP inventory
How do you calculate manufacturing costs?
Direct materials costs + Direct labor costs + Manufacturing overhead costs
How do you calculate direct materials used?
Beginning raw materials inventory + Net purchases, including freight - Ending raw materials inventory
What are the three manufacturing inventory accounts?
Raw materials
WIP
Finished goods
What are the two inventory systems? And what is the difference?
Perpetual - Always up to date, JE will hit the inventory immediately
Periodic - Up to date with a physical count at year-end, JE hits purchases and then at year end, we DB inventory and costs of goods sold and CR purchases
What does a right of return journal entry look like?
When inventory is sold:
(DB) Cash
(CR) Sales
(CR) Refund Liability
(DB) Costs of goods sold
(DB) Return asset
(CR) Inventory
What are the five cost flow methods for inventory?
Moving average
Weighted average
FIFO
LIFO periodic
LIFO perpetual
In inflationary times, FIFO and LIFO will
FIFO will have highest ending inventory and highest net income
LIFO will have the lowest ending inventory and lowest net income
What are the four steps for dollar-value LIFO
- Restate at base-year cost
- Identify layers of inventory
- Determine price index for each layer
- Restate each layer of inventory using price index