ACC 211 Ch6
how many journal entries are made by a company using periodic inventory system when a sale is made?
1
What are the four methods for inventory costing
1) Specific Identification 2) First in, First out (FIFO) 3) Last in, First out (LIFO) 4) Weighted average cost
how many journal entries are made by a company using a perpetual inventory system when a sale is made
2
What does a periodic inventory system/method mean
A periodic inventory system records inventory purchases at specific time intervals and doesn't keep a continuous, real time record of inventory in stock or goods sold to customers. ... A period inventory system records inventory purchases and sales periodically throughout an accounting period.
How to calculate ending inventory or unsold goods
Beginning inventory + Purchases =Available product for sale - COGS (Cost of goods sold) = Ending Inventory
What principle requires companies to use the same accounting principles month to month
Consistency principle
How to calculate weighted cost
Cost of goods available for sale / number units available for sale
Does FIFO or LIFO more closely represent the actual physical flow of inventory ?
FIFO
what inventory items for which the manufacturing process is complete ?
Finished goods inventory
Does FIFO or LIFO provide better matching of current revenues with inventory costs
LIFO
the work in process inventory account typically includes what costs
Labor costs Overhead indirect manufacturing raw materials
Direct labor, Raw materials, and overhead are typically costs of what
Manufacturing costs
What type of income statement reports a series of subtotals as gross profit, operating income, and income before taxes
Multi-step income statement
Includes the cost of components that will become part of the finished product but have not yet been used in production
Raw materials inventory
What are the three costs related to the manufacturing of products
Raw materials, direct labor, & manufacturing overhead
A work in process inventory account typically includes what costs
Raw materials, direct labor, indirect manufacturing costs
How do we calculate Net revenue
Revenue -Sales Return -Sales Discount -Sales allowance --------------------- = Net Revenue
What three accounts are subtracted from revenue to calculate net revenue
Sales Return Sales Discount Sales Allowance F
What are the four Inventory cost methods
Specific identifications FIFO LIFO Weighted average cost
In periodic system inventory returns are recorded in what type of accounts
a contra revenue account like accounts payable
What does perpetual inventory system/method mean
a method of accounting for inventory that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software
Meuller uses periodic inventory systems. When Mueller incurs shipping costs for purchased goods, what account should be debited
a separate freight in account
Where is inventory recorded in financial statements
as a current asset in the balance sheet
LIFO assumes
assumes the last units purchased are the first units sold sells the latest purchase March 5th items will be sold on March 5th even if there is inventory from March 1st
When utilizing a periodic inventory system we must record period end adjustments to
close purchase related temp accounts adjust the inventory balance to its proper balance record costs of goods sold for the period
Beginning inventory plus purchases, plus freight-in, minus purchase discounts and returns, minus ending inventory calculates the amount of
cost of goods sold
Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods
cost of goods sold inventory
is freight in recognized as an operating expense or directly added to inventory ?
directly added to inventory
How is net realizable value NRV calculated?
estimated selling price - cost to sell = NRV
freight costs are added directly into inventory in what type of inventory system?
in a perpetual
Items held for sale in the normal course of business is called
inventory
Inventory is considered and recorded as what in the balance sheet
it is considered and recorded as a current asset
Finished goods inventory consist of what
items for which the manufacturing process is complete
The specific identification method does what and is beneficial to what kind of companies
matches each unit of inventory with its actual cost Unique and expensive item sellers
Wholesaler and retailers are what kind of company
merchandise company
A multi step income statement reports multiple levels of what
multiple levels of income
how is gross profit calculated ?
net sales revenue - cost of goods sold = gross profit
does purchasing inventory on account affect equity ?
no because it affects assets and liabilities therefore cancels out
Freight in costs are debited into inventory using what type of inventory system?
perpetual
Perpetual purchases or inventory
perpetual inventory
is freight out recognized as an operating expense or directly added to inventory ?
recognized as an operating expense
What does the perpetual inventory system do ?
recognizes cost of golds sold and decreases inventory each time a good is sold
FIFO assumes
the first units purchased are the first units sold You have inventory from March 1st and March 5th, you will sell the inventory from March 1st first
What method of valuing inventory was developed to avoid reporting inventory at an amount that is greater than the benefits it can provide
the lower of cost and net realizable value
FOB shipping point means title to the goods passes when?
when they are shipped
Does LIFO or FIFO help to save on taxes
LIFO
The cumulative difference in reporting inventory at LIFO rather than FIFO is commonly referred to as
LIFO Reserve
Periodic purchases or inventory
Periodic purchases
How do we calculate gross profit
revenue - COGS = Gross profit
The average cost method assumes that
the average weighted cost is a mixture of all the goods available for sale
What is the cost of good sold
the cost of the inventory that is sold during the period
The FIFO method assumes
the first units purchased AKA the first units in FI, are the first one sold FO