Inventory Flashcards
When is Gross Margin Inventory Method Used
To estimate the value of unobserved Inventory.
Inventory Includes
Property held for resales
Property in the process of production
property consumed in production.
What is included in Ending Inventory
Any merchandise owned by the entity
Capitalize all costs to bring the inventory to sale: Freight, Insurance in Transit, taxes, packaging
Goods on consignment are owned by the consignor, therefore not included in the inventory of the consignee.
Free on Board
Term applied to inventory in transit. Terms of shipping designates who has title (rights) to the merchandise in transit. Entity who has the risk of loss.
FOB Desitnation
Risk of loss and title remain with Seller
Product is in Sellers inventory
FOB Shipping Point
Risk of loss and title go to Buyer.
Product in Buyers inventroy
Included in Cost of Inventory
Purchase Returns Freight In Sales Tax on Acquisition Packaging Costs Insurance on Transit
Not Included in Cost of Inventroy
Freight out - this is a selling expense
Interest on Purchase - This is Financing
Successive Discounts
Are chain discounts that are applied to the previous net amount.
Example: 20,000(1-.20)(1-.10) = $14,400
During periods of inflation, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which inventory valuation method?
FIFO
Cost to Retail Ratio Excludes what from Denominator
CRR excludes net markdowns from denominator, the ratio is a smaller amount, resulting in a lower ending inventory valuation.
Counter Balancing Means
The effect of the inventory error in the second year is opposite that of the first year. Discovery in year 2 provides an opportunity for the firm to correct year 2 beginning retained earnings, which is over stated by error in year 1.
