Chapter 8 Flashcards
conservatism
A general principle of accounting measurement; when in doubt understate assets and income and overstate liabilities.
consignment
To place inventory in the custody of another party without requiring them to purchase it, as a sales agent.
cost flow assumption
An assumption about how costs are assigned to inventory in the accounting records.
first-in, first-out
FIFO; An inventory cost flow assumption based on the notion that the earliest costs are to be assigned to units sold.
goods in transit
Goods in the process of being transported to the buyer; ownership is based on freight terms.
gross profit method
A technique that purports to estimate inventory and cost of goods sold by applying historic percentage relationships to observable sales information.
last-in, first-out method
LIFO; An inventory cost flow assumption based on the notion that the most recent costs are to be assigned to units sold.
lower-of-cost-or-market
To report inventory at the lower of its cost or market value; market is generally defined as replacement cost.
moving-average method
Under the perpetual inventory system; to recompute running average cost with each purchase transaction.
physical inventory
The process of counting inventory actually on hand.
retail inventory method
A inventory costing technique used by retailers that extrapolates inventory values by applying cost-to-retail percentages to known sales and purchase transactions.
specific inventory method
Inventory costing method where the actual cost of each unit of merchandise is tracked and used for accounting purposes.
weighted-average inventory method
Under the periodic inventory system; inventory cost is based on the average cost of units purchased giving consideration to the quantities purchased at different prices.
