QUIZ 2 acct Flashcards
(29 cards)
intangible property that is (1) held for sale in the normal course of business or (2) used to produce goods or services for sale
inventory
types of inventory
Merchandise and manufacturing
acting as a wholesale…not manufacturing the product themselves
ex: dicks sporting goods would consider Nike shoes as merchandise inventory because buy these inventory items from nike
merchandising inventory
costs include the sum of costs incurred in bringing an article to usable or salable condition and location
invoice price
freight in
inception costs
preparation costs
when producing products themselves
manufacturing inventory
items acquired for the purpose of processing into finished goods
raw materials
goods in the process of being manufactured
-direct labor
-factory overhead
work in process
manufactured goods that are complete and ready for sale
finished goods
why do we need the COGS entry
the matching principle
inventory costing methods:
Specification identification, FIFO, LIFO, and Average cost
costing differs because the price of inventory and raw materials fluctuates throughout time
four alternative methods used
identifies the cost of the specific item sold
specification identification method
The specific indentification method is _____ when a large quantities of similar items are stocked (screws); appropiate when dealing with expensize unique items(airplanes)
impractical
assumes that the first goods purchased are the first goods sold, allocates the oldest unit cost to cost of goods sold and the newest unit costs to ending inventory
FIFO (first in first out)
aassumes that the last goods purchased are the first goods sold, allocates the newest unit cost to cost of goods sold and the oldest unit costs to ending inventory
Last-in, first out (LIFO)
Uses the weighted average unit cost of the goods available unit cost of the goods available for sale for both cost of goods sold and ending inventory
average cost method
choice of an inventory method can have _____ on the financial statements
significant effects
reasons companies adopt different inventory flow methods are varied, but usually involve:
income statement effects and income tax effects
2-balance sheet effects
-fifo had a higher ending inventory than LIFO
-fifo has lower cost of goods sold than lifo
-fifo has higher taxable net income than fifo
this occurs when costs are rising
-lifo has higher ending inventory than fifo
-lifo has lower cost of goods sold than fifo
-lifo has higher taxable net income than fifo
this occurs when costs are decreasing
in a period of increasing prices, the inventory system that will yield the highest net income is:
-specific identification
-FIFO
-lifo
-weighted average
companies must consistently use one cost flow method. they can change but they must do significant disclosures so comparison to prior years may be made
consistency
ending inventory and cost of goods sold are determined at the end of the accountinf period based on a physical count
periodic inventory system
a detailed inventory record is maintained, recording each purchase and sale during the accounting period
perpetual inventory system
