Accounting Chapter 7
Terms
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- average cost metho
- uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory
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cost of goods sold equation
- BI + P - EI = CGS
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direct labor
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refers to the earnings of employees who work directly on the products being manufactued
- factory overhead
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manufacturing costs that are not raw material or direct labor costs
- FIFO method
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assumes that the first goods purchased (the first in) are the first goods sold
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finished goods inventory
- includes manufactured goods that are complete and ready for sale
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goods available for sale
- refers to the sum of beginning inventory and purchases (or transfers to finished goods) for the period
- Inventory
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tangle property held for sale in the normal course of business or used in producing goods or services for sale
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Inventory Turnover Ratio
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measures the efficiency of inventory management. It reflects how many times average inventory was produced and sold during the period.
Inventory Turnover = Cost of Goods Sold/Average Inventory
- LIFO liquidation
- a sale of a lower-cost inventory item from beginning LIFO inventory
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LIFO method
- assumes that the most recently purchased units (the last in) are sold first
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LIFO reserve
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a contra-asset for the excess of FIFO over LIFO inventory
- lower of cost or market (LCM)
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a valuation method departing from the cost principle; it serves to recognize a loss when replacement cost or net realizable value drops below cost
- merchandise inventory
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includes goods held for resale n the ordinary course of business
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net realizable value
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the expected sales price less selling costs (e.g., repair and disposal costs)
- periodic inventory system
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ending inventory and cost of goods sold are determined at the end of the accounting period based on a physical count
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perpetual inventory system
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a detailed inventory record is maintained, recording each purchase and sale during the accounting period
- purchase discount
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a cash discount received for prompt payment of an account
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purchase returns and allowances
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a reduction in the cost of purchases associated with unsatisfactory goods
- raw materials inventory
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includes items acquired for teh purpose of processing into finished goods
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replacement cost
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the current purchase for identical goods
- specific identification method
- identifies the cost of the specific item that was sold
- work in process inventory
- includes goods in the process of being manufactuered