Inventory Flashcards
What is included in inventory cost?
- Warehouse costs prior to sale
- Insurance, repackaging, modifications
- Freight-in paid by buyer
- Transportation costs paid by seller on consignment arrangements
DO NOT INCLUDE abnormal costs!!
Explain FOB shipping point.
When the good is shipped, the inventory belongs to the BUYER.
Seller reduces inventory, buyer increases inventory at year end
Explain FOB destination point.
Title passes to buyer when it’s received.
Inventory is included in seller’s books at year end, buyer doesn’t record anything yet
What is the JE to recognize the purchase of inventory?
DR Inventory
CR AP
What is the JE to recognize the sale in inventory?
DR AR
CR Sales
DR COGS
CR Inventory
What are the (4) inventory costing methods?
- Specific Identification
(Heterogeneous-different) - FIFO
(Homogeneous) - LIFO
(Homogeneous) - Weighted average
(Homogeneous)
Explain FIFO.
First in, first out - COGS
Last items acquired are still here in ending inventory (LISH) - ending inventory
In regards to consignment inventory, what are the responsibilities of the consignor?
The OWNER of the inventory includes the inventory on their books.
Capitalizes FREIGHT-OUT costs to consigned until inventory is sold.
In regards to consignment inventory, explain consignee.
The consignee has possession of the items, but doesn’t recognize inventory on books.
Sales are given back to consignor less costs and commissions
What are the two systems for measuring inventory quantities?
- Periodic inventory system
2. Perpetual inventory system
Explain periodic inventory system.
Inventory quantities are determined by physical count at year end.
Dr purchases
CR AP
Dr ending inventory
Dr cogs (plug)
DR purchases
(Weighted average)
Explain perpetual inventory system.
Ongoing, real time, barcodes
The inventory on hand can be determined at any point in time.
(Moving average)
DR INV
CR AP
DR AR
CR SALES
DR COGS
CR INV
