Chapter 8: Inventories Flashcards
Inventories
Asset items held for sale in the ordinary course of business
Or
Goods to be used in the production of goods to be sold
Raw materials account
Debit cost of materials purchased
Credit cost of materials used
Work in progress
Debit (increase) from materials used, labor used, overhead costs applied
Credit (decrease) cost of goods manufactured (finished goods)
Finished goods
Debit (increase) cost of goods manufactured
Credit (decrease) cost of goods sold
Goods available for sale
(AFS)
Beginning inventory + cost of goods purchased
Or
Ending inventory + cost of goods sold
Cost of goods sold
Cost of goods available for sale - ending inventory
Or
Begining inventory + cost of goods purchased - ending inventory
Inventory over/short account
For shortages (decrease inventory):
Debit inventory over/short
Credit inventory
For overages (increase inventory):
Debit inventory
Credit inventory over/short
Temporary account closed to Cogs
FOB shipping point
Ownership pases to buyer when carrier accepts the goods from the seller
Buyer pays freight
Must do adjusting entries for any inventory in transit at the end of the period
Fob destination
Ownership passes to the buyer when the buyer receives the goods
Seller pays freight costs
Sales with high rates of returns
Record sales revenue at NET amount expected to receive after returns
Establish estimated inventory return account
Product costs
Costs directly connected with bringing the goods to the buyer’s place of business and converting such goofs into a salable condition
Period costs
Generally selling, general and administrative expenses
Average cost methods
Weighted average (usual for periodic inventory) based on all purchase amounts for a period
Moving average (usual for perpetual inventory) average cost calculated every time a purchase is made
FIFO matching
Balance sheet more correct income statement less so
Value of current inventory is accurate but current costs are not matched against current revenues
LIFO matching
Income Statement more accurate and balance sheet less so.
Current costs matched to current income but value of inventory on balance sheet less accurate
LIFO reserve
Difference between inventory method used for internal reporting and LIFO inventory value
LIFO effect
Dollar amount of journal entry to bring lifo reserve to correct amount to reduce inventory value to LIFO
Allowance to reduce inventory to LIFO
Contra asset account to inventory
Permanent account
LIFO liquidation
When, using LIFO inventory valuation, all recent inventory has been sold through and company sells old inventory which is at a much lower price and suddenly COGS is much lower and income is much higher
Addressed with dollar value LIFO
Dollar value LIFO
Inventory at year is end prices / Price index (against base year) = End of year inventory at base year prices - previous year at base year prices = New layer * Price index = Layer at end of year prices \+ Previous layers = balance
If end of year inventory at base year prices is less than previous year must decrease most recent later instead of making a new layer
