FASB 6 Flashcards
List the weighted average cost per unit formula.
Cost of Goods Available for Sale/Number of Units Available for Sale.
What does the acronym FIFO mean?
First In First Out.
List the differences between periodic and perpetual applications of Last In First Out (LIFO).
In perpetual, each sale is cost with most recent purchase;
Perpetual results in a lower Cost of Goods Sold in a period of rising prices.
List the First In First Out (FIFO) cost flow assumptions.
Ending inventory composed of units most recently acquired;
Cost of Goods Sold (COGS) comprised of oldest units;
Most closely matches most firms’ actual physical flows;
Produces higher net income and higher valuation of inventory in periods of rising prices.
List the weighted average (WA) cost flow assumptions.
Weighted average cost per unit is the average cost of all units held during period;
Each item is treated as if cost at WA cost.
What is the calculation for determining Cost of Goods Sold (COGS)?
Beginning Inventory + Net Purchases = Ending Inventory + Cost of Goods Sold
Net purchases = Gross Purchases + Transportation In (Freight In)
- Purchases Returns and Allowances
- Purchases Discounts
List the differences between moving and weighted average cost flow assumptions.
Moving average computes a new weighted average cost per unit after each purchase of inventory;
Moving average results in lower Cost of Goods Sold during period of rising prices.
List the weighted average cost per unit formula
Cost of goods available for sale/number of units available for sale.
List the Last In First Out (LIFO) cost flow assumptions.
Ending inventory composed of oldest inventory;
Cost of Goods Sold (COGS) composed of newest inventory;
Produces lower net income and ending inventory valuation in periods of rising prices.
What account holds inventory acquisition cost during the period under a periodic system?
Purchases.
List the characteristics for the specific identification cost flow assumption.
Specifically identifies cost of each item;
Appropriate for large, costly, distinguishable products.
What inventory system is implied when the moving average cost flow assumption is utilized?
Implies the perpetual inventory system.
For which method should an ending inventory count be made?
Both periodic and perpetual.
What cost flow assumption is the same for both the periodic and perpetual systems?
First In First Out (FIFO).
List the main differences between perpetual and periodic entries
The use of the inventory account rather than purchases and recording cost of goods sold at sale.