Accounting 2 - Chapter 5: FIFO and LIFO, Inventory costing methods

inventory record

A form used during a periodic inventory to record information about each item of merchandise on hand

When the terms of sale for goods in transit are FOB shipping point, the title to the goods passes to the buyer when the goods are received by the buyer. T or F

False - FOB shipping point means title passes to the buyer at the point of shipping, and the goods are included with the buyer's inventory at that time.

IF the cost of ending merchandise inventory is overstated, the net income will be understated. T o F

False - If ending Merch. Inventory is overstated, then Cost of Goods sold would be understated, so Gross Profit would be Overstated, and so would Net Income.

Businesses using a perpetual inventory method never need to take a periodic inventory. T or F

False - errors can occur; a periodic inventory is needed to check for accuracy.

When a sale includes the terms FOB destination, this means that the vendor, or seller, pays the shipping costs, and that title to the merchandise passes to the buyer at the time of shipment. T or F

False - with terms of FOB destination, the seller does pay the cost of shipping, but title passes to the buyer when the goods are received by the buyer.

During a period of increasing prices, the weighted average inventory costing method usually will give the lowest total inventory cost. T or F

False, LIFO should give a lower total cost, since the first products purchased (those remaining in inventory) were bought at a lower price

consignment

Goods which are given to a business to sell, but for which title to the goods remains with the vendor

merchandise inventory turnover ratio

The number of times the average amount of merchandise inventory is sold during a specific period of time.

consignor

The person or business who gives goods on consignment.

A merchandise inventory turnover ratio expresses a relationship between an average inventory and the cost of merchandise sold. T or F

True

A perpetual inventory provides day-to-day records about the quantity of merchandise on hand. T or F

True

FOB means "free on board". When a sale includes terms of FOB shipping point, this means that the buyer pays the shipping costs. T or F

True

The cost of merchandise available for sale consists of the beginning inventory AND the purchases added to the inventory during the fiscal period. T or F

True

The weighted average inventory costing method is based on the assumption that each item in the ending inventory has a cost equal to the average price paid for similar items. T or F

True

Typically, a business counts as part of its inventory all goods for sale legally owned by the business. T or F

True

Because of the expense involved, many businesses take a periodic inventory only once a year. T or F

True - it is very time-consuming and expensive to take a physical (periodic) inventory

purchase order

a completed form authorizing a seller to deliver goods with payment to be made later

stock ledger

a file of stock records for all merchandise on hand

stock record

a form used to show the kind of merchandise, quantity received, quantity sold, and balance on hand

retail method of estimating inventory

estimating inventory by using a percentage based on both cost and retail prices

consignee

the person or business who receives goods on consignment

weighted-average inventory costing method

using the average cost of beginning inventory plus merchandise purchased during a fiscal period to calculate the cost of merchandise sold

lower of cost or market inventory costing method

using the lower of cost or market price to calculate the cost of ending merchandise inventory

FIFO ( first in, first out) inventory costing method

using the price of merchandise purchased first to calculate the cost of merchandise sold first

LIFO (last in, first out) inventory costing method

using the price of merchandise purchased last to calculate the cost of merchandise sold first