Accounting Chapter 7
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A tangible resource that is held for resale in the normal course of operations.
Perpetual inventory system
Updates the inventory account each time inventory is bought or sold.
Periodic inventory system
Updates the inventory account only at the end of an accounting period.
Specific idnetification method
Determines cost of goods sold based on the actual cost of each inventory item sold.
First-in, first-out method
Calculates cost of goods sold based on the assuption that the first unit of inventory available for sale is the first unit sold.
Last-in, first-out method
Calculates cost of goods sold based on the assumption that the last unit of inventory available for sale is the first unit sold.
Moving average method
Calculates cost of goods sold based on the average unit cost of all inventory available for sale.
A temporary delay in the payment of income taxes.
The difference between the LIFO inventory reported on the balance sheet and what inventory would be if reported on a FIFO basis.
Gross profit method
A method of estimating inventory using a company's gross profit percentage to estimate cost of goods sold and then ending inventory.
Requires inventory to be reported on the balance sheet at its market value if the market value is lower than the inventory's cost.
Inventory turnover ratio
Compares cost of goods sold during a period to the average inventory balance during that period and measures the ability to sell inventory.
Converts the inventory turnover ratio into a measure of days by dividing the turnover ratio into 365 days.
An account used to accumulate the cost of all purchases.
An account that accumulates the transportation costs of obtaining the inventory.
Purchase Returns and Allowances
An account that accumulates the cost of all inventory returned to vendors as well as the cost reductions from vendor allowances.
An account that accumulates the cost reductions generated from vendor discounts granted for prompt payments.
The value of inventory purchased and transportation-in less purchase returns and allowances and purchase discounts.
Accounting Chapter 7
Accounting: Chapter 7: Inventory