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33 terms

Financial Accounting Ch. 5

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
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