FAR 7 - Inventory Flashcards
What does FOB shipping point mean?
Freight on board Shipping point - means that ownership of the goods transfers to the buyer when placed with the common carrier, i.e, Fedex, UPS, etc.
What is the moving average method?
Requires that a new unit cost be computed each time goods are purchased.This new unit cost is used to cost all sales until the next purchase.
On moving average method how are computations done?
Total cost divided by total number of units. When a sale or purchase happens, total up cost and divide by total number units.
Journal entries: purchase of inventory
DR Inventory, CR accounts payable
Journal entries: sale of inventory
DR accounts receivable, CR Sales revenue; DR COGS, CR inventory.
What type of inventory is “specific identification” used for?
Heterogeneous - meaning items are different. Also, fewer in number, each has its own special identification number, etc.
What is FIFO?
Inventory costing method - “First In First Out” . Applies to COGS
What is “LISH”?
“Last In Still Here” - equal to ending inventory.
Review- What does acronym ON-TIDE-N-OC stand for?
O - Operating Income, N - Non-operating income, T - Taxes, I - Income from continuing operations(sum of prior 3). D - discontinued operations, E - Extraordinary losses. N - Net Income (sum of prior 3) O - Other comprehensive income, C - Comprehensive income
What is the formula for Operating Income?
Sales-COGS=Gross Profit - SG&A(Selling, General &Administrative expenses) = Operating Income
What is formula for COGS?
Beginning Inventory + net purchases -ending inventory = COGS
What are Period Costs?
SGNA - Selling, General & Administrative expenses that are costed by the period (monthly, quarterly, etc.)
Dollar value LIFO formulas for ending year at base cost
Ending inventory at current cost/consumer price index
In dollar value LIFO what it the formula for consumer price index?
Ending inventory at current cost/Ending inventory at base year dollars
Dollar Value LIFO formula for increase in inventory at base cost
Ending year at inventory @ base cost - beginning year inventory @ base cost
Dollar value LIFO formula for yearly layer at current cost
increase in inventory @ base cost * CPI
Inventory turnover ratio
there are 2 ways to figure it: 1. Sales/Inventory 2. Cost of Goods Sold/Average Inventory{(ending inventory+beginning inventory)/2}
ANother name for Market value?
Replacement cost
How is profit on a percentage basis figured?
Profit is percentage of sales price. For example, 40% profit would be sales 8 *40= cogs. Cogs would be 60% of sales price.
What is Net realizable value
Estimated selling price - estimated costs of completion and sale
In periods of rising prices, what will result in the highest value in inventory?
FIFO
In periods of rising prices what will result in the lowest value in inventory?
LIFO
What is the formula for average pricing method using a periodic inventory system?
Purchases: A @ $1, B @ $2, & C @ $3. Total purchases $6 (A/$6 X $1) + (B/$6 X $2) + (C/$6 X $3) = price D. All inventory sold reported at price D.
What are the 2 methods for accounting for Cash discounts?
Gross method and Net method.
Describe the Gross Method of accounting for cash discounts.
On $6,000 with 10% discount
- Initial sale at full gross price:
Cash 6,000
A/P 6,000
- Payments within discount period:
A/P 6,000
Cash 5,400
Purchase discount 600
- After discount period is ended:
A/P 6,000
Cash 6,000
Describe the Net method of accounting for cash discounts.
$6,000 purchas with 10% discount
- On initial purchase:
Purchases 5,400
A/P 5,400
- During discount period:
A/P 5,400
Cash 5,400
- After discount period:
A/P 5,400
Purchase discounts lost 600
Cash 6,000
