Chapter 13
Natural Business Year
A fiscal year that starts and ends at the time the stock of goods is normally at its lowest level
Inventory Sheet
A form used for recording the description of each item. It has columns for recording the description of each item , the quantity on hand, the cost per unit and the extension
Weighted average method
A method of allocating merchandise cost based on the average cost of identical units . The average cost of identical units is determined by divding the total cost of units available for sale by the total number of units avaible for sale
Specfic Identification Method
A method of allocating merchandise cost in which unit of inventory is specifically identified
First in first out
A method of allocating merchandise cost which assumes that the first goods purchsed were the first goods sold and therefore that the latest goods purchased remain in inventory
Last in First out Method
A method of allocating merchandise cost which assumes that the sales in the period were made from the most recently purchased goods. Therefore the earliest goods purchased remain in the inventory
Gross Profit Method
A method of estimating inventory in which a businesses normal gross profit percentage is used to estimate the cost of goods sold and ending inventory
Physical Inventory
A physical count of goods on hand
Retail Method
A variation of the gross profit method that is used by many retial bussinesses (department and clothing stores)
Lower of cost or market value
An inventory valuation method under which inventory is valued at the lower of the cost or market value (replacement cost)
In Transit
Goods that are in the process of being shipped between the seller and the buyer
Consignment
Good that are held by one business for sale by that are owned by another business
Market
In applying the lower of the cost or market method , market means the cost to replace the inventory.It is prevailing price in the market in which they are normally sold
Cost
In applying the lower or cost or market method , cost means the dollar amount calculated using one of the four inventory costing methods
Conservatism
The accounting practice of conservatism states that we should never anticpategains but always anticipate and account for losses. As applied to inventory , conservatism means that if the value of inventory declines while it is being held the loss should be recognized in the period of the decline
Consignee
The company holding the merchandise of another business to be sold
Consignor
The owner of the merchandise that is held bu another business
Consistency
The principle that states that a business should use the same accounting methods from period to period. This improves the comparability of the financial statments over time
Loss on Wrtie Down of Inventory
This account is debited when the market value (replacement cost)of the inventory is below cost when applying the lower of cost or market method of inventory valuation . It is reported on the income statment as an expense
Periodic Inventory System
Under this system the merchandise inventory and cost of goods sold are determined at the end of the accounting period when a physical inventory is taken