Flashcards in Inventory Deck (24):
Which costs are inventoriable?
Purchases - net of discounts
Freight - FOB Shipping point costs go to buyer; FOB Destination costs charged to seller
When does ownership of goods transfer when shipped FOB Shipping Point?
FOB Shipping Point puts the inventory into the hands of the buyer from the loading dock
When does ownership transfer when goods are sent FOB Destination?
FOB Destination keeps the items in the seller’s inventory until it reaches the buyer
Which costs are non-inventoriable?
Interest on liabilities to vendors
Shipping expense to customers
When are discounts recorded under the gross method?
Under the gross method; discounts are recorded only when used.
Under the net method; when are discounts recorded?
Under the net method; discounts are recorded whether used or not.
Unused discounts are allocated to financing expense.
How is gross margin calculated?
Gross Margin = Sales – COGS (BI + P – EI)
Describe the periodic inventory system.
Inventory is counted at certain times throughout the period
Weighted-average cost flow method is used.
Describe the perpetual inventory system.
Inventory count continually updated
Uses a moving-average cost flow method
In periods of rising prices; under which cost flow system would ending inventory be the same under both periodic and perpetual inventory methods?
Under the FIFO system; periodic and perpetual inventory methods will both have the same ending inventory.
How is inventory turnover calculated?
COGS / Average Inventory
How is Average Day's Sales in inventory calculated?
365 / Inventory Turnover
Under a consignment system; who holds the consigned goods in inventory?
The CONSIGNOR holds the consigned items in their inventory count. The cost includes the shipping to the consignee.
Under a consignment system; does the consignee hold consignment inventory in their own inventory?
No. Consignment goods are maintained in the inventory of the consignor; not the consignee.
What effect does overstatement or understatement of inventory have on ending retained earnings?
Misstatement of beginning inventory does NOT have an effect on ending retained earnings.
Misstatement of ENDING inventory does have an effect on retained earnings.
How does misstatement of ending inventory effect Ending Retained Earnings?
EI Over = COGS Under = ERE Over
EI Under = COGS Over = ERE Under
Which costs are included in COGS first under the FIFO (first in first out) system?
The first (oldest) inventory you have in stock is the first inventory you record for COGS purposes. If your oldest inventory on the shelf cost you $1 when you bought it; COGS is $1
This is just for inventory pricing. It has nothing to do with physically selling the oldest item on the shelf - It is purely for accounting purposes
Which costs are included in COGS under the LIFO (last in first out) system?
The last (newest) inventory you have in stock is the first inventory you record for COGS purposes. If your newest inventory on the shelf cost you $1.50 when you bought it; COGS is $1.50
How is Weighted Average Cost Per Unit calculated under a weighted average inventory system?
COGAS / Total Units = Weighted Average Cost Per Unit
How does FIFO's COGS relate to LIFO's in a time of changing prices?
FIFO's relationship to COGS will be opposite LIFO's relationship to COGS in periods of falling/rising prices.
How do FIFO and LIFO change in a period of rising prices?
FIFO has the Lowest COGS
FIFO is a cat that sees a mouse…starts Low and is Rising
If COGS is Low; that means EI is High
How do FIFO and LIFO change in a period of falling prices?
FIFO has the Highest COGS
Remember: FIFO; that silly cat; got High from Catnip and is Falling off the couch
If COGS is High; that means EI is Low
Under a Lower of Cost or Market; how are the benchmarks calculated?
Market Ceiling = Net Realizable Value = Selling Price - Selling Costs
Market = Replacement Cost
Market Floor = Net Realizable Value - Normal Profit