Test 2 Inventory Flashcards
What is Goods Flow?
The actual movement of goods
What is Cost Flow?
The assumed assignment of costs to goods sold and to ending inventory
FIFO is?
First in First Out, you ship the goods that came into the warehouse first and go on from there`
What is LIFO?
Last in Last Out, you ship out the most recent goods that came into the warehouse and go from there
What is weighted average cost?
You divide the number of inventory by the total cost of inventory and sell at that price
What is the periodic system?
In this system the calculations on inventory are done at the end of the accounting period
What is specific identification method?
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
When is SIM used?
Used for goods that are very high valued and low numbered. Airplane parts, jewelry. EXPENSIVE
When is FIFO used?
FIFO is used by companies that sell goods that expire like food, chemicals, or medicine. Very common.
When is LIFO used?
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
When is weighted average used?
Used by companies with large warehouses that don’t have different COGS on the specific units that are sold
Which system most resembles COGS and ending inventory?
Specific identification most closely identifies the actual cost of goods sold and ending
inventory.
Net realizable value is
an item’s estimated selling price
less the expected cost of disposal.
The lower-of-cost-or-market (LCM) method provides
for the recognition of an inventory write-down loss when the inventory’s replacement cost declines below its recorded acquisition cost
Inventory turnover ratio indicates…and formula
how many times a year, on average a firm sells its inventory
Inventory TO= COGS/AVG INV
What is days’ sales in inventory…formula
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
Just-in-time (JIT) manufacturing
seeks to eliminate or minimize inventory quantities
and their related costs
What is Goods in transit?
the freight bill, which tells you which company pays for the good and who currently owns it
F.O.B. shipping point
The buyer owns the merchandise as soon as it is purchased
FOB destination
The seller owns the merchandise until the good is handed over to the buyer
Inventory Overage
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
Inventory Shrinkage
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
