Inventory Flashcards
What costs are included in inventoriable costs?
Purchases
Freight
Warehouse Expenditures
How are purchases recorded?
Net of discounts
What is FOB shipping point?
Inventory shifts from buyer to seller on the loading dock of the seller.
What is FOB destination?
Inventory stays in seller’s inventory until it arrives to the buyer.
What are some non-inventoriable costs?
Sales commissions
Interest on liabilities to vendors
Shipping expense to customers
What is the gross method of inventory discounts?
Records discounts ONLY when used.
What is the net method of inventory discounts?
Records discounts whether or not used; unused discounts allocated to financing expense.
What is the formula for gross margin?
Sales - COGS
What is a periodic inventory accounting system?
Inventory counted at certain times; weighted average cost flow method
What is a perpetual inventory accounting system?
Inventory continually counted/updated; moving-average cost flow method.
In periods of falling prices under FIFO, what is COGS and ending inventory?
Highest COGS, lowest ending inventory.
In periods of rising prices under LIFO, what is COGS and ending inventory?
Highest COGS, lowest ending inventory
In periods of falling prices under LIFO, what is COGS and ending inventory?
Lowest COGS, highest ending inventory
Who is a consignor and what inventory is included?
Person who sends their inventory to be sold by someone else; include consignment items in inventory count; include shipping to consignee
Who is a consignee and what inventory is included?
Sells someone else’s inventory in their story and they get a cut of the revenue; don’t include consignment inventory held as part of inventory
Which inventory valuation methods use Lower of cost or net realizable value?
FIFO and Average Cost; all other methods besides LIFO and Retail.
What is FIFO?
First (oldest) inventory in stock is first inventory recorded for COGS purposes.
Think back to front.
What is LIFO?
Last (newest) inventory you have in stock is the first inventory you record for COGS purposes.
Think front to back.
What is cost of goods available for sale? (COGAS)
Beginning inventory + purchases
What is weighted average cost per unit?
Cost of goods available for sale (COGAS) / total units.
Then, multiply with units sold to find COGS.
How do you calculate market floor?
NRV - Profit Margin
How do you find market for Lower of cost or market method?
Calculate the market ceiling and market floor. Next arrange the ceiling, inventory replacement cost, and market floor from greatest to least. Take the middle number and compare it to cost and take the lower of those 2 numbers.
How do you calculate net realizable value?
Selling Price - selling costs
How do you find lower of cost or NRV?
Calculate the NRV (selling price - selling costs). Next, compare that amount to cost and take the lower of those two numbers.
