Inventory Flashcards

1
Q

Which costs are inventoriable?

A

Purchases - Net of Discounts, Freight, Warehouse expenditures

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2
Q

When does ownership of goods transfer when shipped FOB Shipping Point?

A

FOB Shipping Point puts the inventory into the hands of the buyer from the loading dock

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3
Q

When does ownership transfer when goods are sent FOB Destination?

A

FOB Destination keeps the items in the seller’s inventory until it reaches the buyer

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4
Q

Which costs are non-inventoriable?

A

Sales Commissions

Interest on liabilities to vendors

Shipping expense to customers

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5
Q

When are discounts recorded under the gross method?

A

Under the gross method, discounts are recorded only when used.

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6
Q

Under the net method, when are discounts recorded?

A

Under the net method, discounts are recorded whether used or not.

Unused discounts are allocated to financing expense.

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7
Q

How is gross margin calculated?

A

Gross Margin : Sales - COGS (BI + P - EI)

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8
Q

Describe the periodic inventory system.

A

Inventory is counted at certain times throughout the period

Weighted-average cost flow method is used.

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9
Q

Describe the perpetual inventory system.

A

Inventory count continually updated

Uses a moving-average cost flow method

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10
Q

In periods of rising prices, under which cost flow system would ending inventory be the same under both periodic and perpetual inventory methods?

A

Under the FIFO system, periodic and perpetual inventory methods will both have the same ending inventory.

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11
Q

How is inventory turnover calculated?

A

COGS / Average Inventory

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12
Q

How is Average Day’s Sales in inventory calculated?

A

365 / Inventory Turnover

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13
Q

Under a consignment system, who holds the consigned goods in inventory?

A

The CONSIGNOR holds the consigned items in their inventory count. The cost includes the shipping to the consignee.

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14
Q

Under a consignment system, does the consignee hold consignment inventory in their own inventory?

A

No. Consignment goods are maintained in the inventory of the consignor, not the consignee.

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15
Q

What effect does overstatement or understatement of inventory have on ending retained earnings?

A

Misstatement of beginning inventory does NOT have an effect on ending retained earnings.

Misstatement of ENDING inventory does have an effect on retained earnings.

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16
Q

How does misstatement of ending inventory effect Ending Retained Earnings?

A

EI Over : COGS Under : ERE Over

EI Under : COGS Over : ERE Under

17
Q

Which costs are included in COGS first under the FIFO (first in first out) system?

A

The first (oldest) inventory you have in stock is the first inventory you record for COGS purposes. If your oldest inventory on the shelf cost you $1 when you bought it, COGS is $1

This is just for inventory pricing. It has nothing to do with physically selling the oldest item on the shelf - It is purely for accounting purposes

18
Q

Which costs are included in COGS under the LIFO (last in first out) system?

A

The last (newest) inventory you have in stock is the first inventory you record for COGS purposes. If your newest inventory on the shelf cost you $1.50 when you bought it, COGS is $1.50

19
Q

How is Weighted Average Cost Per Unit calculated under a weighted average inventory system?

A

COGAS / Total Units : Weighted Average Cost Per Unit

20
Q

How does FIFO’s COGS relate to LIFO’s in a time of changing prices?

A

FIFO’s relationship to COGS will be opposite LIFO’s relationship to COGS in periods of falling/rising prices.

21
Q

How do FIFO and LIFO change in a period of rising prices?

A

FIFO has the Lowest COGS

FIFO is a cat that sees a mouse starts Low and is Rising

If COGS is Low, that means EI is High

22
Q

How do FIFO and LIFO change in a period of falling prices?

A

FIFO has the Highest COGS

Remember: FIFO, that silly cat, got High from Catnip and is Falling off the couch

If COGS is High, that means EI is Low

23
Q

Under a Lower of Cost or Market, how are the benchmarks calculated?

A

Market Ceiling : Net Realizable Value : Selling Price - Selling Costs

Market : Replacement Cost

Market Floor : Net Realizable Value - Normal Profit

24
Q

Weighted Average

A

Total Cost
_______________
Total units

25
Simple average
Total unit costs/# of units costs
26
Moving average
moves each time inventory is added or subtracted
27
Write down of inventory entry
Loss due to market decline | Inventory
28
Purchase Commitments - Journal entry
if there is decline and the contract is non cancellable: Estimated loss on Purchase Commitment Accrued Loss on Purchase Commitment Upon receipt of goods: Inventory Accrued Loss on PC Cash
29
Effect of Inventory write off due to obsolescence | on the Cost of Goods Sold account
Decreases cost of goods sold | JE: CR to Inventory so it decreases COGS since COGS is a credit entry in the Inventory T account
30
Purchase Discounts Lost
is a finance charge if not taken if net method is used - this account is only recognized if the discount is not taken Purchase Discount Lost Cash
31
In inventories, fixed overhead is based on the
normal capacity of the production facilities which is the range that may vary based on business and industry specific factors
32
Unallocated fixed overhead cost is accounted for as
expense when incurred
33
In manufacturing inventory, what is the treatment of abnormal freight in costs?
expense for the period
34
Inventory system with highest ending inventory
perpetual method applied to total inventory even with lcm applied
35
How to compute the LIFO reserve account
always remember that LIFO reserve is a contra account to inventory Get the new target first and adjust to the new target LIFO Reserve Contra: Cost of Goods Sold
36
Inventory valuation that gives the lowest ending inventory is
LIFO
37
In periods of rising prices, applying the LCM rule and weighted average or moving average, what is the valuation which gives the highest ending inventory?
Perpetual method - total inventory