Inventory Flashcards
Markdown Cancellations
Additions that do not increase price above original retail.
FIFO (First In, First Out)
An assumption that goods are sold in the chronological order purchased. The ending inventory will consist of the last purchases made during the accounting period.
Three Methods of Inventory Measurement
Periodic, Perpetual, and Gross Profit Method
Additional Markups
Additions that raise selling price above original retail.
Purchasing, Handling and Storage Costs
Should also be added to inventory cost, but because of the difficulty of association, are usually expensed as period costs
Fair Value under IFRS.
Fair Value it is not an acceptable concept for inventory reporting under IFRS
Finished Goods
Major Category of Inventory
Net Markdowns
Markdowns minus markdown cancellations.
Dollar Value LIFO
The dollar value LIFO inventory consists of a base and layers when the inventory has increased during the period. In dollar value, however, the inventory is expressed in terms of dollars instead of units.
Use of “Discounts Lost” Account (Net Price Method)
Assumed the discount will be taken and the amount originally recorded in purchases and accounts payable is net of the discount.
Raw Materials (Major Category of Inventory)
Materials on hand not yet placed into production
IFRS Major Difference in Inventory Accounting
IFRS #2 does not allow the use of the LIFO method for inventory valuation.
Markup Cancellations
Deductions that do not decrease price below original retail.
Inventory Valuation Methods
Specific IdentificationAverage Costs (Weighted Average Periodic, Weighted Average Perpetual)FIFOLIFO
The primary basis of accounting for inventories
Cost, which is the price paid plus the direct or indirect cost of bringing the article to its existing condition or location.
FIFO Cost Retail Method
The beginning inventory is excluded from the cost to retail ratio calculation. The cost ratio is then applied to the ending inventory at retail to obtain the cost of the ending inventory.
Original Retail
Price at which goods first offered for sale.
Transportation Costs
Should be added to inventory cost.
Work in process (Major Category of Inventory)
Direct material, labor and overhead cost of unfinished units.
As used in the phrase “lower of cost or market”, the term market means _____>
current replacement cost
Net Markups
Additional markups minus markup cancellations.
LIFO (Last In, First Out)
The last goods purchased are assumed to be sold. The ending inventory consists of the goods first purchased.
Cash Discounts Adjustment to Inventory Cost
Should be treated as a reduction of the cost of purchases.
Merchandise (Major Category of Inventory)
Items purchased for resale.
Markdowns
Deductions that lower price below original retail.
Biological assets which include agricultural inventories
An exception to the IFRS lower of cost or market procedures. Biological inventories are reported at first value less cost to sell at the point of harvest.
Trade Discounts or Quantity Discounts.
Discounts from a catalog or list price, used to establish a pricing policy and, therefore, do not enter into the accounting system.
Major objective of inventory accounting
Proper income measurement through the process of matching costs against revenues.
Average Cost Retail Method
For a retail cost method both net markups and net markdowns are included in the cost to retail ratio.
Retail Method of Inventory
An inventory method in which records are maintained at cost and retail. The method is used to maintain accountability and control of inventory assigned to retail units.
Use of “Discounts” Account (Gross Price Method)
If this method is used, discounts are deducted from purchases.
Supplies (Major Category of Inventory)
Manufacturing supplies only, others are prepaid expenses.
Lower Cost of Market under IFRS
Major difference is tha tIFRS defines “market” as net realizable value (ceiling).
