Inventory Flashcards
What are the types of Inventory?
Finished Goods (completed)
Work-in-process (goods in production)
Raw materials and supplies (items to be consumed or used in production)
What is the primary basis of Accounting for inventory?
Cost
Historical Cost, Replacement Cost, Net Realizable Value
What are Inventory Costs?
What are Period Costs?
Inventory Costs:
Net Purchase Price + Indirect Acquisition Costs (Freight-in & Handling)
Period Costs:
Abnormal Freight in and Handling
How does General and Administrative expenses relate to inventory? Selling Expenses?
G&A expenses should NOT be included in inventory except those related to production.
Selling expenses are NEVER Inventory (period charges)
What conditions must be present for Interest Capitalization?
When does capitalization end?
Expenditures for the asset are made
Activities to get asset ready for use are in progress and necessary
Interest cost are accrued
It ends when assets are substantially complete and ready for use.
When is Interest cost NOT capitalized?
Inventories that are normally manufactured or produced in large quantities on a regular basis
How is Realized and Unrealized Holding Gains calculated? What is the difference?
Realized - Current Cost minus Historical cost for assets sold/consumed
Unrealized - Current Cost minus Historical cost for assets still on books at end of period
COGS Holding gains - Realized
Inventory Holding Gains - Unrealized
How are goods in transit treated on the B/S for the buyer and seller?
FOB Shipping Point - Included in inventory of buyer.
FOB Destination - Included in the inventory of the seller.
How are goods on Consignment treated with regards to Inventory?
Included in inventory of the Consignor. (Includes inventory NOT sold at end of period)
Excluded from inventory of Consignee.
What are the Inventory systems?
Periodic & Perpetual
What is the disadvantage of a periodic inventory system?
Does not accurately maintain records of what ending inventory should be. (Inventory shortages/broken/stolen items)
Cost of goods available minus ending inventory equal cost of goods sold
What are the features of a perpetual system?
Inventory sub ledger is kept in agreement with the GL account on a continuing basis.
During periods of inflation which Cost Flow assumption causes Periodic and perpetual ending inventory to equal?
FIFO
What is the result of period & perpetual during rising prices under LIFO?
Perpetual has a higher ending Inventory than periodic.
Perpetual prices the most recent goods while periodic prices the earlier goods.
What are the advantages and Disadvantages of LIFO
Advantage: Matches current cost with Current Revenues
Disadvantage: Inventory stated in terms of oldest costs
