Test 2 Inventory

Question 1

What is Goods Flow?

Answer 1

The actual movement of goods

Question 2

What is Cost Flow?

Answer 2

The assumed assignment of costs to goods sold and to ending inventory

Question 3

FIFO is?

Answer 3

First in First Out, you ship the goods that came into the warehouse first and go on from there`

Question 4

What is LIFO?

Answer 4

Last in Last Out, you ship out the most recent goods that came into the warehouse and go from there

Question 5

What is weighted average cost?

Answer 5

You divide the number of inventory by the total cost of inventory and sell at that price

Question 6

What is the periodic system?

Answer 6

In this system the calculations on inventory are done at the end of the accounting period

Question 7

What is specific identification method?

Answer 7

Keeping track of the purchase cost of
each specific unit available for sale and costing the ending inventory at the actual costs of the specific units not sold

Question 8

When is SIM used?

Answer 8

Used for goods that are very high valued and low numbered. Airplane parts, jewelry. EXPENSIVE

Question 9

When is FIFO used?

Answer 9

FIFO is used by companies that sell goods that expire like food, chemicals, or medicine. Very common.

Question 10

When is LIFO used?

Answer 10

This can be used for tax reasons. It is sometimes used in industries like mining where a new pile of a good is dumped on a previous. This can cause assets to be undervalued

Question 11

When is weighted average used?

Answer 11

Used by companies with large warehouses that don’t have different COGS on the specific units that are sold

Question 12

Which system most resembles COGS and ending inventory?

Answer 12

Specific identification most closely identifies the actual cost of goods sold and ending
inventory.

Question 13

Net realizable value is

Answer 13

an item’s estimated selling price

less the expected cost of disposal.

Question 14

The lower-of-cost-or-market (LCM) method provides

Answer 14

for the recognition of an inventory write-down loss when the inventory’s replacement cost declines below its recorded acquisition cost

Question 15

Inventory turnover ratio indicates…and formula

Answer 15

how many times a year, on average a firm sells its inventory

Inventory TO= COGS/AVG INV

Question 16

What is days’ sales in inventory…formula

Answer 16

days’ sales in inventory calculates in average how many days it takes a company to sell its inventory

days’ sales in inventory=365/Inventory TO

Question 17

Just-in-time (JIT) manufacturing

Answer 17

seeks to eliminate or minimize inventory quantities

and their related costs

Question 18

What is Goods in transit?

Answer 18

the freight bill, which tells you which company pays for the good and who currently owns it

Question 19

F.O.B. shipping point

Answer 19

The buyer owns the merchandise as soon as it is purchased

Question 20

FOB destination

Answer 20

The seller owns the merchandise until the good is handed over to the buyer

Question 21

Inventory Overage

Answer 21

if the physical inventory total is greater than the Inventory account balance, the com-
pany makes an adjusting entry debiting Inventory and crediting Cost of Goods Sold for
the difference between the physical inventory and the Inventory account balance

Question 22

Inventory Shrinkage

Answer 22

If the physical inventory total is less than the Inventory account balance, the company makes an adjusting entry debiting Cost of Goods Sold and crediting Inventory for the difference between the physical inventory total and the balance in the Inventory account. This entry decreases the balance in the Inventory account and adds the cost
of the inventory shortage to Cost of Goods Sold. The cost associated with an inventory shortage is known as inventory shrinkage