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35 Cards in this Set

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Inventory
Tangible property held for sale in the normal course of business or used in producing goods or services for sale
Merchandise Inventory
Goods held for resale in the ordinary course of business
Raw Materials Inventory
Items acquired for the purpose of processing into finished goods
Work in Process Inventory
Goods in the process of being manufactrued but not yet complete. When completed, work in process inventory --> finished goods inventory
Finished Goods Inventory
manufactured goods that are complete and ready for sale
Direct labor
the earnings of employees who work directly on the products being manufactured
When merchandise is purchased, the merchandise inventory account ______
Increases
When merchandise goods are sold, COGS ____ and merchandise inventory _____
increases; decreases
When raw materials are used, COGS is removed from _____ and and added to _____
raw materials inventory; work in process inventory
Factory overhead
manufacturing costs that are not raw material or direct labor costs:
- cost of heat
- cost of light
- cost of power
- superviser's salary
- etc.
When finished goods are sold, cost of goods sold ____, and finished goods inventory ____
increases; decreases
Goods Available for Sale
Beginning Inventory + Purchases
Cost of Goods Sold
BI + P - EI = CGS
Four Inventory Costing Methods
1. Specific identification
2. First in, first out (FIFO)
3. First in, last out (FILO)
4. Average Cost
Specific Identification Method
Identifies cost of specific item sold; good for expensive unique items
FIFO
The first goods purchased are the first good sold
LIFO
The most recently purchased units are sold first
Average Cost Method
Cost of Goods Available for Sale / Number of Units Available for Sale
When unit costs are rising, LIFO produces _____ income and a _____ inventory valuation than FIFO
lower; lower
When unit costs are declining, LIFO produces _____ income and _____ inventory valuation than FIFO
higher; higher
LIFO conformity rule
If LIFO is used on the income tax return, it must also be used to calculate inventory and COGS for financial statements
For inventory with decreasing costs, ____ is most often used for both tax return and financial statements
FIFO
For inventory with increasing csots, ____ is used on the tax return because it normally results in lower income taxes
LIFO
Regardless of _______, a company can use any of the inventory costing methods
physical flow of goods
Changes in methods are made to improve __________
The measurement of financial results and financial position
Replacement Cost
The current purchase price for identical goods
Net Realizable Value
The expected sales price minus selling costs (repair and disposal costs)
LCM
Lower of Cost or Market is the evaluation method departing from the cost principle; it serves to recognize a loss when replacement cost or net realizable value drops below cost
Inventory Turnover
Cost of Goods Sold / Average Inventory
Inventory Turnover - Interpretation
Reflects how many times average inventory is produced and sold during a period
Replacement Cost
The current purchase price for identical goods
Net Realizable Value
The expected sales price minus selling costs (repair and disposal costs)
LIFO Liquidation
When a LIFO company sells more inventory than it purchases or manufactures, items from beginning inventory become part of COGS
Purchase Returns and Allowances
A reduction in the cost of purchases associated with unsatisfactory goods
2/10 and n/10 terms means that if payment is made within __ days of the purchase, a ___ percent cash discount is applied. Otherwise, there is no discount.
10; 2