U2, AOS 1 - Lesson 2 - Inventory Cards (Pt.1)

Question 1

A perpetual inventory system is…

Answer 1

…a system of Accounting for inventory that involves the continuous recording of inventory movements in inventory cards.

Question 2

An Inventory card is…

Answer 2

…a subsidiary Accounting record that records each individual transaction involving the movement in and out of the business of a particular line of inventory.

Question 3

T/f - Each individual line of inventory has its own inventory card.

Answer 3

True - for example, if you had “Red T-Shirt” in three sizes; S, M and L - they would each have their own inventory card.

Question 4

The two cost assignment methods are…

Answer 4

FIFO (First in first out) and IC (Identified cost)

Question 5

When processing a sales return, the unit cost used for the inventory being returned is…

Answer 5

LOFI - last out, first in

Question 6

When recording a sale of inventory using the IC cost assignment method, the unit cost used is…

Answer 6

On the source document (for each unit of inventory)

Question 7

Milk is an example of a product where FIFO should be used, because…

Answer 7

Using the FIFO method assumes that the inventory that was first into the business will be the first out, in the case of milk, this means the oldest milk should be first as it will reach its sell-by date first.

Question 8

T/f - Unit costs recorded on the inventory cards should exclude GST.

Answer 8

True - GST is not factored into unit cost as this is not a cost to the business and will be accounted for through the GST balance process.

Question 9

T/f - Credit sales of inventory are not recorded on the inventory card.

Answer 9

False - all movements of inventory in or out of the business are recorded on the inventory card.

Question 10

If inventory has been sold on credit, the source document recorded on the inventory card will be…

Answer 10

An invoice

Question 11

If inventory has been sold on cash, the source document recorded on the inventory card will be either a…

Answer 11

Cheque or a receipt

Question 12

If the source document is a credit note this indicates the transaction is either a…

Answer 12

Sales return or a purchase return

Question 13

T/f - A sales return is when the business returns defective/damaged inventory to its supplier.

Answer 13

False - that would be a purchase return.

Question 14

T/f - A purchase return is when the business returns defective/damaged inventory to its supplier.

Answer 14

True

Question 15

T/f - A sales return is when a customer returns inventory to the business.

Answer 15

True

Question 16

T/f - The most common reason why a business experiences sales returns is due to the customer changing their mind.

Answer 16

True