Inventories Flashcards
What three types of costs are included in inventory on the balance sheet?
- Purchase cost,
- conversion costs, and
- other costs necessary to bring the inventory to its present location and condition.
How are period costs, such as abnormal waste, most storage costs, administrative costs, and selling costs handled?
They are expensed as incurred.
Describe FIFO:
The cost of the first item purchased is the cost of the first item sold. Ending inventory is based on the cost of the most recent purchases, thereby approximating current cost.
Describe LIFO:
The cost of the last item purchased is the cost of the first item sold. Ending inventory is based on the cost of the earliest items purchased. LIFO is prohibited under IFRS.
Which is prohibited under IFRS? LIFO or FIFO?
LIFO
Describe weighted average cost:
COGS and inventory values are between their FIFO and LIFO values.
Describe specific identification:
Each unit sold is matched with the unit’s actual cost
What are the four inventory cost flow methods?
- FIFO
- LIFO
- Weighted average cost
- Specific identification
When purchase or production costs are rising, which COGS is higher? LIFO or FIFO?
LIFO
When purchase or production costs are rising, which method produces a higher gross profit? LIFO or FIFO?
FIFO
When purchase or production costs are rising, which method results in the lowest inventory? LIFO or FIFO?
LIFO
Which inventory cost flow method always represents true COGS best?
LIFO
What inventory cost flow method always best represent true inventory value best?
FIFO
When prices are rising and inventory quantities are stable or increasing LIFO results in what four things?
higher COGS
lower gross profit
lower inventory balances
higher inventory turnover
When prices are rising and inventory quantities are stable or increasing FIFO results in what four things?
- lower COGS
- higher gross profit
- higher inventory balances
- lower inventory turnover
