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Glossary of Accounting 1A Chapter 9 Inventories

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A detailed listing of merchandise on hand.
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physical inventory
A method of inventory costing that is based on the assumption that the costs of merchandise sold should be charged against revenue in the order in which the costs were incurred.
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first-in, first-out (fifo) method
A method of inventory costing that is based on the assumption that the most recent merchandise inventory costs should be charged against revenue.
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last-in, first-out (lifo) method
The method of inventory costing that is based on the assumption that costs should be charged against revenue by using the weighted average unit cost of the items sold.
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average cost method
A method of valueing inventory that reports the inventory at the lower of its cost or current market value (replacement cost).
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lower-of-cost-or-market (LCM)
The estimated selling price of an item of inventory less any direct costs of disposal, such as sales commissions.
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net realizable value
A method of estimating inventory cost that is based on the relationship of the cost of merchandise available for sale to the retail price of the same merchandise.
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retail inventory method
A method of estimating inventory cost that is based on the relationship of gross profit to sales.
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gross profit method
A ratio that measures the relationship between the volume of goods (merchandise) sold and the amount of inventory carried during the period.
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inventory turnover
A measure of the length of time it takes to acquite, sell, and replace the inventory.
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number of days' sales in inventory
A detailed listing of merchandise on hand is called a(n)___________ __________.
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physical inventory
At the end of the year, the physical inventory is overstated. As a result, the cost of merchandise sold will be ____________.
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understated
At the end of the year, the physical inventory is understated. As a result, the owner's capital reported on the balance sheet will be _____________.
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understated
The ______ - ________, _______ -__________method of costing inventory is based on the assumption that the most recent merchandise inventory costs should be charged against revenue.
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last-in, first-out (fifo)
On June 1, there was beginning inventory of 5 units at $100 per unit. During June, the following three purchases were made: June 7, 10 units at $110 per unit; June 17, 15 units at $115 per unit; and June 23, 8 units at $116 per unit. If 12 units are on h
$1,270
During a period of consistently falling prices, the ________(fifo or lifo) method will result in reporting the greater amount of gross profit.
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lifo
The _____-____-____-____-____ method reports inventory at the lower of its cost or current market value (replacement costs).
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lower-of-cost-or-market (LCM)
During July, merchandise available for sale at cost and retail is $240,000 and $400,000, respectively. If $25,000 of merchandise at retail is on hand on July 31, the estimated cost of the merchandise on hand on July 31 is _________.
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$15,000
The _____ ____ method estimates inventory cost based on the relationship of gross profit to sales.
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gross profit
The _______ __________ ratio measures the relationship between the volume of goods (merchandise) sold and the amount of inventory carried during the period.
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inventory turnover
At the end of the year, the physical inventory is overstated. As a result, net income will be _________.
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overstated
At the end of year, the physical inventory is understated. As a result, the gross profit will be ________.
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understated
The _____ _________ method estimates inventory cost based on the relationship of the cost of merchandise available for sale to the retail price of the same merchandise.
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retail inventory
The ______-____, _____-_____ method of costing inventory is based on the assumption that the costs of merchandise sold should be charged against revenue in the order in which the costs were incurred.
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first-in, first-out (fifo)
The ________ ______ method costs inventory based upon the assumption that costs should be charged against revenue in accordance with the weighted average unit costs of the items sold.
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average cost
The estimated selling price of an item of inventory less any direct costs of disposal, such as sales commmissions, is callled ____ ______ _______.
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net realizable value
If merchandise inventory at the end of the period is understated:
a) gross profit will be overstated
b) owner's equity will be overstated
c) net income will be understated
d) cost of merchandise sold will be understated.
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a)incorrect. If merchandise inventory at the end of the period is understated, gross profit will be understated, not overstated.
b)incorrect. If merchandise inventory at the end of the period is understated, owner's equity will be understated, not overstated.
c) Correct. If merchandise inventory at the end of the period is understated, net income will be understated because cost of merchandise sold will be overstated.
d) incorrect. If merchandise inventory at the end of the period is understated, cost of merchandise sold will be overstated, not understated.
During a period of rising prices, the inventory costing method that will result in the lowest amount of net income is:
a)fifo
b)lifo
c)average cost
d)perpetual
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a)incorrect. During a period of rising prices, the fifo inventory costing method will result in the highest amount of net income.
b)correct.During a period of rising prices, the lifo inventory costing method will result in the lowest amount of net income.
c)incorrect. During a period of rising prices, the average inventory costing method will result in an amount of net income that is higher than lifo and lower then fifo.
d)incorrect. The perpetual inventory system is not an inventory costing method.
When lifo is strictly applied to a perpetual inventory system, the unit cost prices assigned to the ending inventory will not necessarily be those associated with the earliest unit costs of the period if:
a) a physical inventory is taken at the end
c. When lifo is strictly applied to a perpetual inventory system, the unit cost prices assigned to the ending inventory will not necessarily be those associated with the earliest unit costs of the period if at any time during a period the number of units of a commodity sold exceeds the number previously purchased during the same period.
If the replacement price of an item of inventory is lower than its cost, the use of the lower of cost or market method:
a) is not permitted unless a perpetual inventory system is maintained
b) is recommended in order to maximize the reported ne
a)incorrect.The lower of cost or market method is permitted under both the periodic and the perpetual inventory systems.
c)Correct. If the replacement price of an item of inventory is lower than its cost, the use of the lower of cost or market method reduces gross profit for the period in which the declined occurred.

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