Chapter 8 Flashcards
Cost of components purchased from other manufacturers that will become part of the finished product
Raw Materials
Products that are not yet complete
Work-in Progress Inventory
Costs that have accumulated in work-in progress are transferred to finished goods once the manufacturing process is completed
Finished Goods
Account inventory is continuously adjusted for each change in inventory, whether it’s caused by a purchase, a sale, or a return of merchandise by the company to the supplier
Perpetual Inventory System
The merchandise inventory account balance is not adjusted as purchases and sales are made but only periodically at the end of a reporting period when a physical count of the period’s ending inventory is made and costs are assigned to the quantities determined
Periodic Inventory System
Legal title to the goods changes hands at the point of shipment when the seller delivers the goods to the common carrier
f.o.b. Shipping point
The seller is responsible for shipping and the legal title does not pass until the goods arrive at their destination
F.o.b. Destination
The consignor physically transfers the goods to the other company but the consignors retains legal title
Consignment
Costs associated with products and expenses as cost of goods sold only when the related products are sold
Product Costs
In a periodic system, freight costs generally are added to this temporary account that is added to purchases in determining net purchases
Freight-In
A reduction in both inventory and accounts payable at the time of the return
Purchase Return
Reductions in the amount to be paid if remittance is made within a designated period of time
Purchase Discounts
Each unit sold during the period or each unit on hand at the end of the period to be matched with its actual cost
Specific Identification Method
Assumes cost of goods sold and ending inventory consist of a mixture of all the goods available for sale
Average Cost Method
Assumes that items sold are those that were acquired first
FIFO Method
Assumes units sold are the most recent units purchased
LIFO Method
If a company uses LIFO to measure taxable income, the company also must use LIFO for external financial reporting
LIFO Conformity Rule
Contra account to inventory used to record the difference between the internal method and LIFO
LIFO Reserve
The decline in inventory quantity during the period
LIFO Liquidation
A system used by a manufacturer to coordinate production with suppliers so that raw materials or components arrive just as they are needed in the production process
Just-in-Time System
Estimates cost of goods sold which is then subtracted from the cost of goods available for sale to estimate ending inventory
Gross Profit/Margin Method
Measures a company’s efficiency in managing its investment inventory
Inventory Turnover Ratio
Simplifies recordkeeping and reduces the risk of LIFO liquidation by grouping inventory units into pools based on physical similarities of the individual units
LIFO Inventory Pools
Inventory is viewed as a quantity of value instead of a physical quantity of goods
Dollar-Value LIFO (DVL)
