Chapter 8 Flashcards
Inventories: Measurement (19 cards)
Inventory
goods awaiting sale (finished goods), goods in the course of production (work in process), and goods to be consumed directly or indirectly in production (raw materials). Goods acquired, manufactured, or in the process of being manufactured for sale
Cost of Goods Sold
cost of the inventory sold during the period
Raw Materials
components purchased from suppliers that will become part of the finished product
Work-in-process Inventory
products that are not yet complete in the manufacturing process
Finish Goods
products that have been completed in the manufacturing process but have not yet been sold
Perpetual Inventory System
a system of accounting for inventory by continuously adjusting the balance of the inventory account for each purchase, sale, or return of inventory; the cost of goods sold account is adjusted for each sale or return of inventory by customers.
Periodic Inventory System
a system of accounting for inventory that involves an adjusting entry at the end of the period to update the balances of the inventory account and the cost of goods sold account for purchases, sales, and returns during the period.
F.O.B. (Free On Board) Shipping Point
legal title to the goods passes from the seller to the buyer at the point of shipment (when the seller delivers the goods to the common carrier); the buyer is responsible for shipping costs and transit insurance
F.O.B. Destination
legal title to the goods does not pass from the seller to the buyer until the goods arrive at their destination (the customer’s location); the seller is responsible for shipping costs and transit insurance
Consignment
a selling arrangement whereby the consignor physically transfers goods to another company (“consignee”) to sell, while legal title and risk of ownership of those goods remain with the consignor during the consignment period
Product Costs
costs associated with products and expensed as cost of goods sold only when the related products are sold
Purchase Return
a reduction in both inventory and accounts payable (if the account has not yet been paid) at the time of the return
Purchase Discounts
reductions in the amount to be paid if remittance is made within a designated period of time
Gross Method
the buyer views a discount not taken as part of the cost of inventory; the seller views a discount not taken by the customer as part of sales of revenue
Net Method
he buyer considers the cost of inventory to include the net, after-discount amount, and any discounts not taken are reported as interest expense; the seller considers sales revenue to be the net amount, after discount, and any discounts not taken by the customer are included in sales revenue
Specific Identification Method
each unit of inventory sold during the period or each unit on hand at the end of the period is matched with its actual cost
Average Cost Method
assumes cost of goods sold and ending inventory consist of a mixture of all the goods available for sale
First-In, First Out (FIFO) Method
assumes that the first inventory units purchased are the first ones sold
