Chapter 6 Notes Flashcards
(260 cards)
1
Q
Inventory
A
Items intended for sale in business operations.
2
Q
Current Asset
A
Asset expected to be converted to cash within a year.
3
Q
Manufacturing Company
A
Company that produces goods for sale.
4
Q
Merchandising Company
A
Company that sells goods without manufacturing.
5
Q
Raw Materials
A
Basic materials used in the manufacturing process.
6
Q
Work in Process
A
Partially finished goods in the production process.
7
Q
Finished Goods
A
Completed products ready for sale to customers.
8
Q
Cost of Goods Sold (COGS)
A
Cost of inventory sold during a period.
9
Q
Multiple-Step Income Statement
A
Income statement format separating operating and non-operating activities.
10
Q
Total Inventory
A
Sum of all inventory types available for sale.
11
Q
Ending Inventory
A
Value of unsold inventory at period end.
12
Q
Beginning Inventory
A
Value of inventory at the start of the period.
13
Q
Purchases During the Year
A
Total inventory bought throughout the accounting period.
14
Q
Asset in Balance Sheet
A
Inventory reported as a resource owned by the company.
15
Q
Expense in Income Statement
A
Cost of goods sold recorded as an expense.
16
Q
Service Companies
A
Businesses that provide services instead of goods.
17
Q
Revenue Recognition
A
Recording revenue when inventory is sold.
18
Q
Intel Inventory Example
A
Shows raw, work in process, and finished goods.
19
Q
Best Buy Inventory Example
A
Illustrates merchandise inventories for a retailer.
20
Q
Inventory Flow
A
Movement of inventory from manufacturing to merchandising.
21
Q
Concept Check 6-1
A
Question assessing understanding of finished goods.
22
Q
Concept Check 6-2
A
Question assessing understanding of cost of goods sold.
23
Q
Inventory
A
Current asset representing unsold goods’ cost.
24
Q
Cost of Goods Sold (COGS)
A
Expense for inventory sold during the period.
25
Multiple-Step Income Statement
Income statement detailing multiple profitability levels.
26
Gross Profit
Net revenues minus cost of goods sold.
27
Operating Income
Gross profit minus operating expenses.
28
Income Before Taxes
Operating income plus nonoperating revenues minus expenses.
29
Net Income
Total revenues minus total expenses.
30
Specific Identification
Matches each inventory unit with its actual cost.
31
First-in, First-out (FIFO)
Assumes earliest purchased units are sold first.
32
Last-in, First-out (LIFO)
Assumes latest purchased units are sold first.
33
Weighted-Average Cost
Each unit's cost equals average cost of all items.
34
Selling Expenses
Costs related to selling products, like advertising.
35
General and Administrative Expenses
Overhead costs not directly tied to production.
36
Operating Expenses
Costs required for normal business operations.
37
Income Tax Expense
Taxes owed on income before tax deductions.
38
Gain on Sale of Investment
Profit from selling an investment asset.
39
Investment Income
Earnings from investments held by the company.
40
Interest Expense
Cost incurred from borrowed funds.
41
Total Available for Sale
Sum of beginning inventory and purchases.
42
Ending Inventory
Cost of unsold inventory at period's end.
43
Units Sold
Total number of inventory items sold.
44
Balance Sheet
Financial statement showing assets, liabilities, equity.
45
Income Statement
Financial report summarizing revenues and expenses.
46
FIFO
First-In, First-Out; oldest inventory sold first.
47
LIFO
Last-In, First-Out; newest inventory sold first.
48
Weighted-Average Cost
Average cost of all inventory used for sales.
49
Cost of Goods Sold (COGS)
Total cost of inventory sold during a period.
50
Assumptions in Inventory Accounting
Methods do not need to match actual inventory flow.
51
Inventory Cost Flow Assumptions
FIFO, LIFO, and weighted-average methods for inventory.
52
Common Mistake in FIFO
Forgetting to include beginning inventory as first sold.
53
Common Mistake in LIFO
Assuming actual sales match reported inventory costs.
54
Cost of Goods Available for Sale
Total cost of inventory available for sale.
55
Beginning Inventory
Inventory carried over from previous period.
56
Total Purchases
Sum of all inventory purchases during the period.
57
Units Sold
Number of inventory units sold during the period.
58
Cost per Unit
Price paid for each unit of inventory.
59
Inventory Calculation
Method to determine ending inventory and COGS.
60
Mario's Game Shop
Example used for illustrating inventory calculations.
61
Inventory Transactions
Records of purchases and sales of inventory.
62
Units Not Sold
Inventory remaining at the end of the period.
63
Cost of Ending Inventory
Value of inventory not sold at period's end.
64
Total Units Purchased
Aggregate number of units acquired during the period.
65
Cost of Ending Inventory Calculation
Total cost of remaining inventory after sales.
66
Assumed Sales Pattern
Theoretical method of tracking inventory sales.
67
Inventory Reporting Flexibility
Companies can report inventory costs using assumptions.
68
FIFO Method Illustration
Example showing calculations using FIFO for inventory.
69
LIFO
Last-in, first-out inventory cost method.
70
Cost of Goods Sold
Total cost of inventory sold during a period.
71
Weighted-Average Cost
Average cost of all inventory items.
72
Beginning Inventory
Initial stock available at the start of a period.
73
Ending Inventory
Stock remaining unsold at the end of a period.
74
FIFO
First-in, first-out inventory cost method.
75
Weighted-Average Unit Cost
Total cost divided by total units available.
76
Total Cost
Sum of all costs associated with inventory.
77
Units Sold
Quantity of inventory sold during a period.
78
Common Mistake
Errors often made in inventory calculations.
79
Simple Average
Arithmetic mean of unit costs without weighting.
80
Total Units
Sum of all units available for sale.
81
Inventory Calculation
Process of determining inventory costs.
82
Purchase
Acquisition of inventory items.
83
Transaction Date
Date when inventory transactions occur.
84
Units Not Sold
Inventory remaining at the end of a period.
85
Cost Allocation
Distribution of total costs among inventory items.
86
Inventory Cost Flow Assumptions
Methods used to determine cost of goods sold.
87
Total Units Available
Total inventory units ready for sale.
88
Inventory Method Comparison
Analysis of different inventory valuation methods.
89
Weighted-Average Cost
Average cost of inventory for reporting.
90
LIFO Conformity Rule
Requires LIFO for tax and financial reporting.
91
Cost of Goods Sold
Total cost of inventory sold during period.
92
Gross Profit
Sales revenue minus cost of goods sold.
93
Balance Sheet Approach
Focus on ending inventory value for assets.
94
Income Statement Approach
Focus on cost of goods sold for expenses.
95
Tax Savings
Benefit of lower reported profits under LIFO.
96
Reported Profit
Net income shown on financial statements.
97
Rising Costs
Period when inventory prices increase.
98
Financial Statement Effects
Impact of inventory methods on financial reports.
99
Physical Flow
Actual movement of inventory through a company.
100
LIFO Reserve
Difference between LIFO and FIFO inventory values.
101
Current Cost
Cost reflecting current market prices.
102
Sales Revenue
Total income from sales before expenses.
103
Inventory Reporting Methods
Different approaches to valuing inventory.
104
Kroger Company
Example company illustrating inventory reporting.
105
Partial Balance Sheet
Snapshot of financial position at a specific time.
106
Inventory Cost Methods
Techniques for valuing inventory on financial statements.
107
Ending Inventory Value
Monetary worth of remaining inventory.
108
Comparison of Methods
Analysis of FIFO, LIFO, and weighted-average costs.
109
Consistency in Reporting
Method changes are restricted after selection.
110
Inventory Method Disclosure
Companies must inform stockholders of inventory methods.
111
LIFO
Last units purchased are first sold.
112
FIFO
First units purchased are first sold.
113
Weighted-average
Average cost of inventory is used for sales.
114
Net Income
Total revenue minus total expenses.
115
Perpetual Inventory System
Continuously updates inventory records.
116
Periodic Inventory System
Updates inventory records at period's end.
117
Physical Inventory Count
Actual count of inventory at period's end.
118
Rising Prices
Increased costs affecting inventory valuation.
119
Higher Reported Income
Result of FIFO during rising prices.
120
Lower Reported Income
Result of LIFO during rising prices.
121
Inventory Purchase
Acquisition of goods for resale.
122
Accounts Payable
Liability for purchases made on credit.
123
Asset
Resource owned by a company.
124
Liability
Obligation owed to creditors.
125
Inventory Transaction
Records of buying and selling inventory.
126
Mario's Game Shop
Example business used for inventory transactions.
127
Total Revenue
Total income from sales before expenses.
128
Total Cost
Total expenditure on inventory purchases.
129
Sales Revenue
Income generated from selling goods.
130
Inventory Balance
Value of inventory on hand at a time.
131
Accounts Receivable
Money owed by customers for sales made.
132
Sales Revenue
Income from selling goods or services.
133
Cost of Goods Sold
Direct costs of producing sold inventory.
134
Inventory
Goods available for sale to customers.
135
FIFO
First-In, First-Out inventory valuation method.
136
LIFO
Last-In, First-Out inventory valuation method.
137
Perpetual Inventory System
Continuous tracking of inventory transactions.
138
Profit on Sale
Revenue minus cost of goods sold.
139
Freight Charges
Costs associated with transporting inventory.
140
FOB Shipping Point
Title transfers when inventory ships.
141
FOB Destination
Title transfers when inventory arrives.
142
Purchase Discounts
Price reductions for early payment by buyers.
143
Purchase Returns
Returning unwanted or defective inventory to seller.
144
Inventory Adjustment
Changes made to inventory records for accuracy.
145
Beginning Inventory
Value of inventory at the start of a period.
146
Ending Inventory
Value of inventory at the end of a period.
147
Sales Price
Amount charged to customers for goods sold.
148
Units Sold
Total quantity of inventory sold to customers.
149
Inventory Balance
Remaining inventory value after transactions.
150
LIFO Adjustment
Conversion of FIFO records to LIFO for reporting.
151
Debit Entry
Accounting entry that increases assets or expenses.
152
Credit Entry
Accounting entry that increases liabilities or equity.
153
Profit Calculation
Sales price minus cost of goods sold.
154
FOB Shipping Point
Title transfers when inventory leaves supplier's warehouse.
155
Cost of Sales
Includes purchase price and shipping costs.
156
Perpetual Inventory System
Continuously updates inventory account with transactions.
157
Freight Charges
Costs added to inventory for incoming shipments.
158
Purchase Returns
Deducted from inventory cost when items returned.
159
Purchase Discounts
Reductions in inventory cost for prompt payment.
160
Sales Revenue
Income generated from selling goods or services.
161
Accounts Payable
Money owed to suppliers for purchases made.
162
Net Realizable Value
Estimated selling price minus selling costs.
163
Lower of Cost and Net Realizable Value
Inventory reported at lower of cost or NRV.
164
Shipping Costs
Expenses related to transporting goods to customers.
165
Selling Expenses
Costs incurred to sell products, not included in COGS.
166
Sortation Centers
Facilities for sorting products before delivery.
167
Delivery Centers
Locations for final product delivery to customers.
168
Purchase on Account
Acquisition of inventory with deferred payment.
169
Sales Return
Return of sold goods by customers.
170
Payment on Account
Settling accounts payable with cash.
171
Receipt on Account
Receiving cash for outstanding accounts receivable.
172
Freight Charges on Outgoing Shipments
Costs for shipping products to customers.
173
Net Realizable Value
Estimated selling price minus costs to sell.
174
Cost of Goods Sold
Expense representing the cost of inventory sold.
175
Year-End Adjusting Entry
Adjustment made to reflect inventory valuation.
176
Weighted-Average Cost
Average cost method for inventory valuation.
177
Specific Identification
Tracking individual item costs for inventory.
178
Inventory Adjustment
Change in inventory value based on valuation methods.
179
Ending Inventory
Value of unsold inventory at year-end.
180
Cost
Purchase price of inventory items.
181
Lower of Cost and NRV
Reporting inventory at the lesser of cost or NRV.
182
Inventory Reduction
Decreasing inventory value when NRV is lower.
183
Cost Adjustment
Difference between recorded cost and NRV.
184
Item A
Inventory item with 100 units at $4 cost.
185
Item B
Inventory item with 150 units at $8 cost.
186
Total Cost
Sum of costs for all inventory items.
187
Total NRV
Sum of net realizable values for inventory.
188
Cost Comparison
Evaluating costs against net realizable values.
189
Inventory Reporting
Presenting inventory values on financial statements.
190
Selling Price
Market price at which inventory can be sold.
191
Cost to Sell
Expenses incurred to sell inventory items.
192
Adjustment Entry Example
Debit Cost of Goods Sold, credit Inventory.
193
Inventory Valuation Methods
Techniques for determining inventory value.
194
Cost and NRV Calculation
Process of determining lower value for reporting.
195
Inventory Turnover Ratio
Measures how often inventory is sold in a period.
196
Cost of Goods Sold
Total cost of producing goods sold during a period.
197
Average Inventory
Mean value of inventory over a reporting period.
198
Average Days in Inventory
Average days inventory is held before sale.
199
Gross Profit Ratio
Indicates profit margin per dollar of sales.
200
Net Sales
Total revenue from sales after returns and discounts.
201
Best Buy
Retailer with high inventory turnover ratio.
202
Tiffany's
Luxury retailer with low inventory turnover ratio.
203
Inventory Management
Process of overseeing and controlling inventory levels.
204
Reporting Period
Timeframe for financial reporting and analysis.
205
Financial Ratios
Quantitative relationships used to assess financial performance.
206
Calculation of Ratios
Involves using specific formulas for financial metrics.
207
Ending Inventory
Inventory remaining at the end of a period.
208
Beginning Inventory
Inventory available at the start of a period.
209
Average of Balances
Sum of beginning and ending balances divided by two.
210
Profit Margin
Percentage of sales revenue that exceeds costs.
211
Inventory Holding Period
Duration inventory is kept before being sold.
212
Financial Analysis
Evaluation of financial data to assess performance.
213
Turnover Rate
Frequency of inventory sales over a specific time.
214
Inventory Metrics
Key performance indicators related to inventory management.
215
Sales Efficiency
Effectiveness in converting inventory into sales.
216
Retail Performance
Assessment of a retailer's sales and inventory management.
217
Gross Profit Ratio
Measures profit per dollar of sales.
218
Periodic Inventory System
Adjusts inventory periodically, not continuously.
219
Physical Count
Inventory assessment at reporting period's end.
220
Beginning Inventory
Initial stock available at the start.
221
Inventory Purchases
Acquisition of stock for resale.
222
Sales Revenue
Total income from sold inventory.
223
Cost of Goods Sold
Cost incurred to produce sold goods.
224
Purchase Discounts
Reductions in price for early payment.
225
Purchase Returns
Returning unsold inventory to suppliers.
226
Accounts Payable
Liabilities owed to suppliers for purchases.
227
Accounts Receivable
Money owed by customers for sales.
228
Sales on Account
Sales made with deferred payment terms.
229
Ending Inventory
Stock remaining at the reporting period's end.
230
Temporary Accounts
Accounts closed at period's end.
231
Adjusting Entry
Entry to update account balances.
232
Inventory (Ending)
Final inventory value after adjustments.
233
Freight-in
Cost of shipping inventory to the business.
234
Purchase Discounts Recorded
Accounting for discounts received on purchases.
235
Inventory Transactions
Records of buying and selling inventory.
236
Cost of Goods Sold Calculation
Total cost of inventory sold during period.
237
Sales Revenue Calculation
Total revenue from inventory sales.
238
Inventory Adjustments
Changes made to inventory records.
239
Gross Profit
Revenue minus cost of goods sold.
240
Sales Revenue
Total income from goods sold.
241
Cost of Goods Sold
Direct costs of producing sold goods.
242
Beginning Inventory
Value of inventory at the start.
243
Purchases
Total cost of new inventory bought.
244
Freight-in
Shipping costs added to inventory.
245
Purchase Discounts
Reductions in purchase costs.
246
Purchase Returns
Goods returned to suppliers.
247
Multiple-Step Income Statement
Income statement with detailed revenue and expenses.
248
Periodic Inventory System
Inventory updates at specific intervals.
249
Perpetual Inventory System
Continuous tracking of inventory levels.
250
FIFO Method
First-in, first-out inventory valuation method.
251
Inventory Errors
Mistakes affecting reported inventory values.
252
Overstate Ending Inventory
Report higher inventory than actual.
253
Understate Ending Inventory
Report lower inventory than actual.
254
Retained Earnings
Cumulative profits retained in the business.
255
Cost of Goods Available for Sale
Total cost of goods ready for sale.
256
Asset
Resource owned by a business.
257
Expense
Cost incurred in earning revenue.
258
Balance Sheet
Financial statement showing assets and liabilities.
259
Income Statement
Financial statement showing revenues and expenses.
260
Adjusting Entry
Entry made to update account balances.
