Inventory Flashcards
Periodic Inventory System
inventory count at a specific point in time
Perpetual Inventory System
tracks inventory on an on-going basis.
Retail Method of Inventory Estimation
uses current cost of goods sold and revenue to determine an estimate of inventory
Gross Profit Method of Inventory Estimation
uses current cost of goods sold and gross profit to determine an estimate of inventory.
Current Cost Income from Continuing Operations
When current cost of goods sold is less than historical cost, will be greater than historical cost income from continuing operations.
LCM Applied to Inventory I
results in the lowest inventory amount because unrealized losses on inventory items cannot be offset by unrealized gains on other inventory items.
LCM Applied to Inventory II
a different inventory amount would be reported when the LCM rule is applied to (1) total inventory, (2) groups of similar inventory items, or (3) each inventory item. The total inventory and groups of similar items methods of applying the LCM rule for inventories would allow unrealized losses on some inventory items to be offset by unrealized gains on others. This would result in a higher inventory amount than if the LCM rules were applied to each inventory item
Period of Rising Prices
moving weighted average method (perpetual system) will give a higher ending inventory figure than the weighted average method with a periodic system because with the moving weighted average method, more of the early (low) costs are released to cost of goods sold with that method than with a periodic system, leaving the higher costs for the ending inventory figure.
Realized Holding Gain
An increase in the current cost of inventory items sold
Unrealized Holding Gain
An increase in the current cost of inventory items on hand
Current Cost Financial Statements
measure and report both realized and unrealized holding gains.
Non Cancelable Agreement for Future Purchase of Inventory
if Contract price > Market price and it is expected that loss will occur on purchase, recognize loss (Market Price - Contracted Price) at the time of decline in prices.
Periodic Inventory System: Recording
acquisitions of inventory goods are debited to “Purchases” while issuances are not recorded. At any point in time the balance in the inventory account reflects the amount at the “beginning” of the period. The inventory on hand is “periodically” determined by physical count. cost of goods sold (CGS) is a residual amount obtained by subtracting the ending inventory from the sum of beginning inventory and net purchases.
Perpetual Inventory System: Recording
the balance in the inventory account at any time reveals the inventory that should be on hand.
COGS: Current Cost Basis
multiply the number of units sold by the average current cost of the units during the year. (Average current cost of the units during the year is the sum of the current cost of the units at the beginning and the end of the year, divided by two.).
