Chapter 7 - Inventories and COGS

Question 1

What is the cost of goods sold equation?

Answer 1

• BI + P - EI = COGS

Question 2

Define goods available of sale

Answer 2

• the sum of beginning inventory and purchases

Question 3

What is inventory turnover (and days to sell)?

Answer 3

COGS/AVG INVENTORY

• then divide 365 days/# of turns
• number of times inventory turns
• higher ratio = faster turnover

Question 4

Define LIFO.

Answer 4

• Last In Last Out

- assumes that the most recently purchased units are sold first.

Question 5

Define FIFO

Answer 5

• assumes the cost of the first goods purchased are the costs of the first goods sold.

Question 6

Define purchase discount

Answer 6

• a cash discount received for prompt payment.

Question 7

Define purchases returns and allowances

Answer 7

• a reduction in the cost of inventory purhcases associated with unsatisfactory goods.