Inventory Flashcards
If beginning inventory is understated by $26,000, and ending inventory is overstated by $52,000 what happens to the COGS?
The COGS sold will be understated by $78,000.
Beginning bal + purchases - ending inventory = COGS.
What does FOB Shipping Point mean?
Title passes to the buyer when the seller delivers the goods to a common carrier. Goods shipped in this manner should be included in the BUYER”S inventory upon shipment.
What does FOB destination mean?
Title passes to the buyer when the buyer receives the goods from the common carrier.
Explain the consignor/consignee process.
The seller (consignor) delivers goods to an agent (consignee) to hold and sell on the consignor’s behalf. The consignor should include the consigned goods in its inventory because title and risk of loss is retained by the consignor even though the consignee possess the good.
Freight-out
Freight-out is a selling (i.e., period) expense, not an item that is capitalized as inventory.
Freight-in
Freight-in is capitalized as part of inventory (i.e., it is part of the cost of getting the inventory ready for its intended use)
What is the market value?
Under U.S. GAAP, market value is the median (middle value) of an inventory item’s replacement cost, its market ceiling, and its market floor.
What is replacement cost?
Replacement cost is the cost to purchase an item of inventory as of the valuation date.
What is the market ceiling?
Market ceiling is an item’s net selling price less the cost to complete and dispose (called the net realizable value) (NRV)
What is the market floor?
Market floor is the market ceiling less a normal profit margin.
What is net realizable value (NRV)?
Selling price - Cost to sell = NRV
Lower of Cost or NRV is used with which inventory method(s)?
FIFO or weighted average
Lower of Cost or Market is used with which inventory method(s)?
LIFO or retail
What is the inventory equation?
Beginning Inv. + Purchases = Cost of goods available for sale - EI = C.O.G.S
What are the two types of inventory systems?
Periodic and perpetual
When is periodic inventory updated?
At the end of the accounting period.
When is perpetual inventory updated?
After each purchase and sale.
