Chapter 6 Flashcards
an owner of inventory goods who ships them to another party who will then find a buyer and sell the goods for the owner the consignor retains title to the goods while they are held offsite by the considnee
consignor
consignee
one who receives and holds goods owned by another party for the purpose of acting as an agent and selling the goods for the owner the consignee gets paid a fee from consignor for finding a buyer
What is NRV
Net realizable value
what is the definition of NRV
the expected sales price of an item minus the cost of making the sale
the selling price of merchandise inventory
retail price
cost of inventory cacluations
purchase price minus discounts provided by supplier ( trade discounts/rebates) + additional costs necessary to put inventory in a place and condition for sale = cost of inventory
examples of additional incidental costs that are to be added to inventory
- import duties
- transportation-in (freight costs)
- storage
-insurance
-handling costs - costs incurred in an aging process where the aging contributes to the value of the product produced ( for example aging of wine and cheese)
what does accounting principles imply
the incidental costs are assigned to every unit purchased - this is so that all inventory costs are properly matched against revenue in the period when inventory is sold
materiality principle
states that an amount may be ignored if its effect on the financial statements is not important to their users. Financial statement preparers need to assess whether the item would impact the decision of a user
what does materiality principle rely on
relied on by some companies as the reason some incidental costs are not allocated to inventory
physical inventory count
to count merchandise inventory for the purpose of reconciling goods actually on hand to the inventory control account in the general ledger; also called taking an inventory
internal controls
the policies and procedures used to protect assets, ensure reliable accounting, promotes efficient operations, and urge adherence to company policies
COGS caculations
beginning inventory + purchases minus ending inventory = COGS
what is FIFO
First-in, first-out
what are the three key methods that are used in assigning costs to inventory and cost of goods sold under perpetual inventory system
- First-in, first-out FIFO
-moving weighted average - specific identification