Ch 6 Vocabulary

Question 1

Average cost method

Answer 1

An inventory cost method that assumes that the goods available for sale are homogeneous or non-distinguishable. The cost of goods sold and end inventory are determined using an average cost, calculated by dividing the cost of the goods available for sale by the units available for sale. p 293

Question 2

Consigned goods

Answer 2

Goods shipped by a consignor, who retains ownership, to a party called the consignee, who holds the goods for sale. p 288

Question 3

Days in inventory

Answer 3

A liquidity measure of the average number of days that inventory is held. It is calculated as 365-days divided by the inventory turnover ratio. p 306

Question 4

First-in, first-out (FIFO) cost method

Answer 4

An inventory cost method that assumes that the costs of the earliest (oldest) goods acquired are the first to be recognized as the cost of goods sold. The costs of the latest goods acquired are assumed to remain in ending inventory. p 291

Question 5

Internal control

Answer 5

A process designed to help an organization achieve reliable financial reporting, effective and efficient operations, and compliance with relevant laws and regulations. p 287

Question 6

Inventory turnover

Answer 6

A liquidity measure of the number of times, on average, that inventory is sold during the period. It is calculated by dividing the cost of goods sold by the average inventory. Average inventory is calculated by adding the beginning and ending inventory balances and dividing the result by two. p 306

Question 7

Lower of cost and net realizable value (LCNRV)

Answer 7

A basis for stating inventory at the lower of its original cost and its net realizable value at the end of the period. p 304

Question 8

Net Realizable value (NRV)

Answer 8

The selling price of an inventory item, less any costs required to make the item saleable. p 304

Question 9

Specific identification method

Answer 9

An inventory cost determination method used when goods are distinguishable and not ordinarily interchangeable. It follows the actual physical flow of goods, and individual items are specifically costed to arrive at the cost of goods sold and cost of the ending inventory. p 290

Question 10

Weighted average unit cost

Answer 10

The average cost of inventory weighted by the number of units purchased at each unit cost. It is calculated as the cost of goods available for sale divided by the number of units available for sale. p 293