Accounting: Chapter 6

Where is inventory reported in the financial statement?

Balance sheet as a current asset

Manufacturers

Companies that produce the inventory they sell

Merchandising Company

Companies that serve as intermediaries between manufacturers and end users.

In times of rising prices:

Ending inventory determined using the LIFO inventory assumption will be lower than ending inventory determined using the FIFO inventory assumption.

A multiple step income statement reports multiple levels of __________?

Income

Inventory

Items held for sale in the normal course of business

Inventory Turnover Ratio

The number of times a firm sells its average inventory balance during a reporting period. It equals cost of goods sold divided by average inventory.

periodic inventory system

An inventory system that does not continuously track the cost of merchandise sold.

Average Cost Method

Costing inventory method that assumes that ending inventory consists of a mixture of all the goods available for sale.

FIFO

Inventory cost flow assumption commonly used internally by companies that externally report under the LIFO cost flow assumption.

perpetual inventory system

Inventory system that recognizes cost of goods sold and decreases inventory each time a sale occurs.

Work-in-process

Products that have been started in production, but are still incomplete.

FOB shipping point

Title to goods passes when they are shipped

Unique products and very expensive products

A company is most likely to utilize the specific identification method if its inventory consists of what products?

FIFO

A method for costing inventory that assumes that units sold are the first units acquired.

FIFO, LIFO, Weighted Average, Specific Identification

Methods for costing inventory

Gross Profit

Net Sales Revenue minus Cost of Goods Sold

Nonoperating revenues and expenses

The category of revenues and expenses reported immediately after operating income.

LIFO Reserve

The cumulative difference between reporting inventory at LIFO rather than FIFO.

LIFO Reserve

The disclosure that shows the difference in the cost of inventory between LIFO and FIFO.

LIFO Method

The inventory costing method that assumes that the units that remain in ending inventory are the oldest units in inventory.

Specific Identification Method

The inventory costing method that matches each unit of inventory with its actual cost

Raw materials, direct labor, and manufacturing overhead

The three costs related to the manufacturing of products.