Chapter 7- Inventory

Question 1

What is inventory?

Answer 1

any items for resale for customers use in the process to resale

Question 2

merchandisers or retailers inventory

Answer 2

sell finished goods

Question 3

manufacturers inventory

Answer 3

Raw materials, Work-in-process, Finished good

Question 4

Management’s objective:

Answer 4

sell inventory at a higher price than it was purchased for

Question 5

Inventory ownership (3)

Answer 5

FOB shipping point, FOB destination, Consignment arrangements

Question 6

FOB shipping point

Answer 6

buyer owns the inventory when it leaves to seller’s premise

Question 7

FOB destination

Answer 7

buyer owns the inventory when it leaves the buyer’s premise

Question 8

Consignment Arrangements

Answer 8

consignor vs consignee

Question 9

A company begins its accounting period with…

Answer 9

inventory from previous period (opening inventory)

Question 10

the cost of opening inventory is…

Answer 10

cost of purchases; Cost of goods available for sale; opening inventory + purchases

Question 11

determine COGS by periodic system

Answer 11

opening inventory + purchases - ending inventory

Question 12

perpetual system

Answer 12

continual tracking of units/costs, COGS and purchases updated after every transaction, always up to date

Question 13

periodic system

Answer 13

inventory purchases recorded in Purchase account, weekly, monthly, quarterly, yearly, not up to date, *cheaper

Question 14

obsolesce

Answer 14

notable reduction in the utility of an inventory item or fixed asset

Question 15

cost formula: specific identification

Answer 15

specific costs are allocated to COGS, if goods are unique and identifiable

Question 16

cost formula: weighted average

Answer 16

avg of costs of items purchased, will fluctuate

Question 17

cost formula: first-in-first-out (FIFO)

Answer 17

first item purchased is the first item sold

Question 18

Net realizable value (NRV)

Answer 18

Expected selling price - estimated cost to make sale, Dr COGS and Cr Inventory

Question 19

what statement is inventory carried onto?

Answer 19

financial position; at lower of cost or NRV

Question 20

Gross Margin

Answer 20

Sales revenue - COGS, percentage of sales revenue

Question 21

Internal controls

Answer 21

ensuring safekeeping of inventory (physical, assignment of of responsibility, separation of duties etc)

Question 22

Inventory turnover

Answer 22

COGS/Avg inventory, how fast inventory is sold

Question 23

Days to sell inventory

Answer 23

365/ Inventory turnover ratio

Question 24

specific identification method

Answer 24

if a company’s goods are 100% unique