26 terms

Chp.6-Exam 3

products held for resale and is classified as a current asset on the balance sheet
cost of goods sold
the outflow of resources caused by the sale of inventory and is the most important expense on the income statement of companies that sell goods instead of services
gross margin (profit)
sales revenues -- cost of goods sold; indicates the extent to which the resources generated by sales can be used to pay operating expenses and provide for net income
companies (retailers/wholesalers) that purchase inventory in a finished condition and hold it for resale without further processing
merchandisers that sell directly to consumers
merchandisers that sell to other retailers
companies that buy and transform raw materials into a finished product which is then sold
raw materials inventory
basic ingredients to make a product
work-in-process inventory
the raw materials that are used in production as well as other production costs such as labor and utilities
finished goods inventory
represents the cost of the final product that is available for sale
cost of goods available for sale
the sum of beginning inentory and purchases
ending inventory
the portion of the cost of goods available for sale that remains unsold at the end of the year
perpetual inventory system
balances for inventory and cost of goods sold are continually updated with each sale or purchase of inventory
periodic inventory system
records the cost of purchases as they occur, takes a physical count of inventory at the end of the period and applies the cost of goods sold model to determine the balances of ending inventory and cost of goods sold
the cost of merchandise acquired for resale during the accounting period
purchase discounts
price reductions to encourage prompt payment by the customer
discount period
reduced payment period
purchase returns
cost of merchandise returned to suppliers
purchase allowance
the purchaser may choose to keep the merchandise if the seller is willing to gran a dudction from the purchase price
transportation costs the buyer is responsible for
transportation costs the seller is responsible for
channel stuffing
steals sales from the next period and distorts the results of the company's operations
first-in, first-out (FIFO) method
the earliest purchases are assumed to be sold first, and more recent purchases are in ending inventory
last-in, first-out (LIFO) method
the most recent purchases are the first to be sold
average cost method
allocates the cost of goods availab eofr sale between ending inventory and cost of goods sold based on a weighted average cost per unit
lower of cost or market (LCM) rule
if the mkt value of a company's inventory is lower than its cost, the company reduces the amt recoerded for the inventory to its mkt value