Financial Accounting Ch. 5

33 terms by ellermba

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merchandise inventory

the account wholesalers and retailers use to report inventory held for sale

raw materials

the inventory of a maufacterer before the addition of any direct labor or manufactoring overhead

work in process

the cost of unfinished products in a manufactoring company

finished goods

a manufacturer;s inventory that is complete and ready for sale

gross profit

net sales less cost of goods sold

net sales

sales revenue less sales returns and allowances and sales discounts

sales revenue

a representation of the inflow of assets

sales returns and allowances

contra revenue account used to record refunds to customers and reductions of their accounts

sales discount

a conta revenue account used to record discounts given to customers for early payment of their account

cost of goods available for sale

beginning inventory plus cost of goods purchased

cost of goods sold

cost of goods available for sale minus ending inventory

perpetual system

a system in which the inventory account is increased at the time of each purchase and decreased at the time of each sale

periodic system

a system in which the inventory account is updated only at the end of the period

transportation - in

an adjunction account used to record freight costs paid by the buyer aka freight - in

purchases

an account used in a periodic inventory system to record acquisitions of merchandise

purchase returns and allowances

a contra purchase account used in a periodic inventry system when a refund is received from a supplier or a reduction is given in the balance owed to a supplier

purchase discount

a contra - purchases account used to record reductions in purchase price for early payment to a supplier

FOB destination point

The seller pays the freight costs and keeps ownership of goods until they reach the buyer.

FOB shipping point

Ownership passes to buyer as goods get on the truck at the seller's dock, so the BUYER owns the good during transit and must pay for shipping costs.

gross profit ratio

gross profit divided by net sales

specific identification method

an inventory costing method that relies on matching unit costs with the actual units sold

weighted average cost method

an inventory costing method that assigns the same unit cost to all units available for sale during the period

FIFO method

an inventory costing method that assigns the most recent costs to ending inventory

LIFO method

an inventory method that assigns the most recent costs to cost of goods sold

LIFO liquidation

the result of selling more units than purchased during the period, which can have negative tax consequences if a company is using LIFO

LIFO conformity rule

the IRS requirement that when LIFO is used on a tax return, it must also be used in reporting income to stockholders

LIFO reserve

the excess of the value of a company's inventory stated at FIFO over the value stated at LIFO

replacement cost

the current cost of a unit of inventory

inventory profit

the portion of the gross profit that results from holding inventory during a period of rising prices

lower-of-cost-or-market LCM rule

a conservative inventory valuation approach that is an attempt to anticipate declines in the value of inventory before its actual sale

inventory turnover ratio

cost of goods sold divided by average inventory. It's a measure of how fast an entity turns its inventory.

number of day sales in inventory

a measure of how long it takes to sell inventory

moving average

the name given to an averge cost method when a weighted average cost assumption is used with a perpetual inventory system

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