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CPA FAR > Inventory > Flashcards

Inventory Flashcards

2
Q

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Which costs are inventoriable?

A

Purchases - net of discounts

Freight - FOB Shipping point costs go to buyer; FOB Destination costs charged to seller

Warehouse expenditures

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3
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When does ownership of goods transfer when shipped FOB Shipping Point?

A

FOB Shipping Point puts the inventory into the hands of the buyer from the loading dock

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4
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When does ownership transfer when goods are sent FOB Destination?

A

FOB Destination keeps the items in the seller’s inventory until it reaches the buyer

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5
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Which costs are non-inventoriable?

A

Sales Commissions

Interest on liabilities to vendors

Shipping expense to customers

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6
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When are discounts recorded under the gross method?

A

Under the gross method; discounts are recorded only when used.

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7
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Under the net method; when are discounts recorded?

A

Under the net method; discounts are recorded whether used or not.

Unused discounts are allocated to financing expense.

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8
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How is gross margin calculated?

A

Gross Margin = Sales – COGS (BI + P – EI)

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9
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Describe the periodic inventory system.

A

Inventory is counted at certain times throughout the period

Weighted-average cost flow method is used.

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10
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Describe the perpetual inventory system.

A

Inventory count continually updated

Uses a moving-average cost flow method

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11
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In periods of rising prices; under which cost flow system would ending inventory be the same under both periodic and perpetual inventory methods?

A

Under the FIFO system; periodic and perpetual inventory methods will both have the same ending inventory.

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12
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How is inventory turnover calculated?

A

COGS / Average Inventory

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13
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How is Average Day’s Sales in inventory calculated?

A

365 / Inventory Turnover

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14
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Under a consignment system; who holds the consigned goods in inventory?

A

The CONSIGNOR holds the consigned items in their inventory count. The cost includes the shipping to the consignee.

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15
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Under a consignment system; does the consignee hold consignment inventory in their own inventory?

A

No. Consignment goods are maintained in the inventory of the consignor; not the consignee.

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16
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What effect does overstatement or understatement of inventory have on ending retained earnings?

A

Misstatement of beginning inventory does NOT have an effect on ending retained earnings.

Misstatement of ENDING inventory does have an effect on retained earnings.

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17
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How does misstatement of ending inventory effect Ending Retained Earnings?

A

EI Over = COGS Under = ERE Over

EI Under = COGS Over = ERE Under

18
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Which costs are included in COGS first under the FIFO (first in first out) system?

A

The first (oldest) inventory you have in stock is the first inventory you record for COGS purposes. If your oldest inventory on the shelf cost you $1 when you bought it; COGS is $1

This is just for inventory pricing. It has nothing to do with physically selling the oldest item on the shelf - It is purely for accounting purposes

19
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Which costs are included in COGS under the LIFO (last in first out) system?

A

The last (newest) inventory you have in stock is the first inventory you record for COGS purposes. If your newest inventory on the shelf cost you $1.50 when you bought it; COGS is $1.50

20
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How is Weighted Average Cost Per Unit calculated under a weighted average inventory system?

A

COGAS / Total Units = Weighted Average Cost Per Unit

21
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How does FIFO’s COGS relate to LIFO’s in a time of changing prices?

A

FIFO’s relationship to COGS will be opposite LIFO’s relationship to COGS in periods of falling/rising prices.

22
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How do FIFO and LIFO change in a period of rising prices?

A

FIFO has the Lowest COGS

FIFO is a cat that sees a mouse…starts Low and is Rising

If COGS is Low; that means EI is High

23
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How do FIFO and LIFO change in a period of falling prices?

A

FIFO has the Highest COGS

Remember: FIFO; that silly cat; got High from Catnip and is Falling off the couch

If COGS is High; that means EI is Low

24
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Under a Lower of Cost or Market; how are the benchmarks calculated?

A

Market Ceiling = Net Realizable Value = Selling Price - Selling Costs

Market = Replacement Cost

Market Floor = Net Realizable Value - Normal Profit

CPA FAR (21 decks)

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