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