Topic 5: Inventories and Cost of Sales

Question 1

FOB

Answer 1

Free on board.

Question 2

Net Realizable Value

Answer 2

Expected selling price (value) of an item minus the cost of making the sale.

Question 3

Consignor

Answer 3

Owner of goods held by another party who will sell them for the owner.

Question 4

Consignee

Answer 4

Receiver of goods owned by another who holds them for purposes of selling them for the owner.

Question 5

Specific Identification (SI)

Answer 5

Method for assigning cost to inventory when the purchase cost of each item in inventory is identified and used to compute cost of goods sold and/or cost of inventory.

Question 6

FIFO (first-in-first-out)

Answer 6

Method to assign cost to inventory that assumes items are sold in the order acquired; earliest items purchased are the first sold.

Question 7

LIFO (last-in-first-out)

Answer 7

Method for assigning cost to inventory that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold.

Question 8

Weighted Average

Answer 8

Method for assigning inventory cost to sales; the cost of available-for-sale units is divided by the number of units available to determine per unit cost prior to each sale, which is then multiplied by the units sold to yield the cost of that sale; also called average cost.