• inventory

    This current asset reports a retailer’s or manufacturer’s goods on hand at its cost (or lower). Because the unit costs change, a cost flow assumption is needed.

    inventory

    This current asset reports a retailer’s or manufacturer’s goods on hand at its cost (or lower). Because the unit costs change, a cost flow assumption is needed.

  • cost of goods sold (or) cost of sales

    This is usually the largest expense on the income statement of a retailer or manufacturer. The cost flow (FIFO, LIFO, etc.) will have an effect on the amount.

    cost of goods sold (or) cost of sales

    This is usually the largest expense on the income statement of a retailer or manufacturer. The cost flow (FIFO, LIFO, etc.) will have an effect on the amount.

  • lower of cost or net realizable value

    This inventory valuation rule is usually associated with the accounting concept of conservatism. It is relevant when the value of inventory items are less than the actual cost to purchase or produce.

    lower of cost or net realizable value

    This inventory valuation rule is usually associated with the accounting concept of conservatism. It is relevant when the value of inventory items are less than the actual cost to purchase or produce.

  • estimated inventory

    The amount of inventory determined without a physical count of the items on hand.

    estimated inventory

    The amount of inventory determined without a physical count of the items on hand.

  • first in, first out (or) FIFO

    This cost flow assumption removes from inventory the oldest cost first and includes them in the cost of goods sold. As a result, the most recent costs remain in inventory.

    first in, first out (or) FIFO

    This cost flow assumption removes from inventory the oldest cost first and includes them in the cost of goods sold. As a result, the most recent costs remain in inventory.

  • last in, first out (or) LIFO

    This cost flow assumption removes from inventory the most recent costs first and includes them in the cost of goods sold. As a result, the older costs remain in inventory.

    last in, first out (or) LIFO

    This cost flow assumption removes from inventory the most recent costs first and includes them in the cost of goods sold. As a result, the older costs remain in inventory.

  • weighted average periodic

    When this cost flow assumption is used, the unit cost of the inventory and the unit cost of the goods sold will be the same. The calculation of the unit cost is goods available total costs for the year divided by the total goods available units for the year.

    weighted average periodic

    When this cost flow assumption is used, the unit cost of the inventory and the unit cost of the goods sold will be the same. The calculation of the unit cost is goods available total costs for the year divided by the total goods available units for the year.

  • moving average perpetual

    This cost flow assumption means that a new average cost must be computed after each purchase. This new unit cost is then used until the next purchase of goods occurs.

    moving average perpetual

    This cost flow assumption means that a new average cost must be computed after each purchase. This new unit cost is then used until the next purchase of goods occurs.

  • periodic

    Under this inventory system the inventory account will have no entries until a physical inventory occurs at the end of the accounting year.

    periodic

    Under this inventory system the inventory account will have no entries until a physical inventory occurs at the end of the accounting year.

  • perpetual

    When this inventory system is used the inventory account will be debited when goods are purchased, and it will be credited when goods are sold. It will also mean that the account Cost of Goods Sold will be debited.

    perpetual

    When this inventory system is used the inventory account will be debited when goods are purchased, and it will be credited when goods are sold. It will also mean that the account Cost of Goods Sold will be debited.

  • LIFO periodic

    With this cost flow assumption the oldest costs in the ending inventory are determined after the year has ended.

    LIFO periodic

    With this cost flow assumption the oldest costs in the ending inventory are determined after the year has ended.

  • LIFO perpetual

    Under this cost flow assumption the most recent cost at the time of each sale is credited to Inventory and debited to the Cost of Goods Sold.

    LIFO perpetual

    Under this cost flow assumption the most recent cost at the time of each sale is credited to Inventory and debited to the Cost of Goods Sold.

  • cost flow assumption

    This refers to the order in which costs will be removed from inventory and reported as the cost of goods sold. (This is independent of the physical flow of the goods.)

    cost flow assumption

    This refers to the order in which costs will be removed from inventory and reported as the cost of goods sold. (This is independent of the physical flow of the goods.)

  • specific identification

    This method for removing costs from inventory is used when the unit costs are very significant.

    specific identification

    This method for removing costs from inventory is used when the unit costs are very significant.

  • obsolete (or) obsolescence

    This term is associated with inventory items that have become outdated. This is one of the costs of holding inventory.

    obsolete (or) obsolescence

    This term is associated with inventory items that have become outdated. This is one of the costs of holding inventory.

  • overstated

    This term means that a reported amount is greater than the correct amount.

    overstated

    This term means that a reported amount is greater than the correct amount.

  • understated

    This term means that a reported amount is less than the correct amount.

    understated

    This term means that a reported amount is less than the correct amount.

  • manufacturer's inventory

    This current asset includes raw materials, work-in-process, finished goods, and packaging materials.

    manufacturer's inventory

    This current asset includes raw materials, work-in-process, finished goods, and packaging materials.

  • raw materials

    Conversion costs are applied to this component of a manufacturer’s product cost.

    raw materials

    Conversion costs are applied to this component of a manufacturer’s product cost.

  • work-in-process (or) WIP

    This inventory category reports a manufacturer’s cost of products that have been started but not completed.

    work-in-process (or) WIP

    This inventory category reports a manufacturer’s cost of products that have been started but not completed.

  • finished goods

    This inventory category reports a manufacturer’s cost of products that have been completed and are in the warehouse ready for sale.

    finished goods

    This inventory category reports a manufacturer’s cost of products that have been completed and are in the warehouse ready for sale.

  • conservatism

    This accounting concept directs an accountant to reduce the cost of an item in inventory to its net realizable value when it is lower than cost.

    conservatism

    This accounting concept directs an accountant to reduce the cost of an item in inventory to its net realizable value when it is lower than cost.

  • net realizable value (or) NRV

    This term is defined as the selling price in the ordinary course of business minus the costs of completion, disposal, and transportation.

    net realizable value (or) NRV

    This term is defined as the selling price in the ordinary course of business minus the costs of completion, disposal, and transportation.

  • gross profit method

    A common technique for estimating the cost of a company’s ending inventory.

    gross profit method

    A common technique for estimating the cost of a company’s ending inventory.

  • retail method

    A common technique used to estimate the cost of a retailer’s ending inventory.

    retail method

    A common technique used to estimate the cost of a retailer’s ending inventory.

  • physical inventory

    This term describes the actual counting of the goods on hand (as opposed to relying on the quantity shown in the computer records).

    physical inventory

    This term describes the actual counting of the goods on hand (as opposed to relying on the quantity shown in the computer records).

  • inventory turnover ratio

    This ratio is the result of dividing 1) the cost of goods sold for a year by 2) the average cost in inventory during the year.

    inventory turnover ratio

    This ratio is the result of dividing 1) the cost of goods sold for a year by 2) the average cost in inventory during the year.

  • days' sales in inventory

    This is the result of dividing 360 or 365 days by the inventory turnover ratio.

    days' sales in inventory

    This is the result of dividing 360 or 365 days by the inventory turnover ratio.

  • FOB destination

    When this term appears on an invoice it indicates that ownership of the goods will pass from the seller to the buyer when the goods reach the buyer’s location.

    FOB destination

    When this term appears on an invoice it indicates that ownership of the goods will pass from the seller to the buyer when the goods reach the buyer’s location.

  • FOB shipping point

    When this term appears on an invoice it indicates that ownership of the goods will pass to the buyer when the goods leave the seller’s warehouse.

    FOB shipping point

    When this term appears on an invoice it indicates that ownership of the goods will pass to the buyer when the goods leave the seller’s warehouse.

  • goods in transit

    This phrase indicates that items have been shipped by the seller but have not yet reached the buyer. (The ownership of these items depends on the terms of the sale.)

    goods in transit

    This phrase indicates that items have been shipped by the seller but have not yet reached the buyer. (The ownership of these items depends on the terms of the sale.)

  • freight-in

    This term refers to the transportation costs paid by the buyer for products that were purchased with terms FOB shipping point. These costs are part of the cost of the goods.

    freight-in

    This term refers to the transportation costs paid by the buyer for products that were purchased with terms FOB shipping point. These costs are part of the cost of the goods.

  • lead time

    The duration of time between 1) the date when goods are ordered, and 2) the date when the goods are received.

    lead time

    The duration of time between 1) the date when goods are ordered, and 2) the date when the goods are received.

  • cost of inventory

    This includes all costs that are necessary to get a product into inventory. A retailer’s payment of freight-in is an example.

    cost of inventory

    This includes all costs that are necessary to get a product into inventory. A retailer’s payment of freight-in is an example.

  • manufacturing costs (or) production costs

    These are the inventoriable costs and include a product’s direct materials, direct labor, and manufacturing overhead.

    manufacturing costs (or) production costs

    These are the inventoriable costs and include a product’s direct materials, direct labor, and manufacturing overhead.

  • standard costing

    This accounting system uses predetermined unit costs for materials, labor and overhead in order to identify inefficiencies.

    standard costing

    This accounting system uses predetermined unit costs for materials, labor and overhead in order to identify inefficiencies.

  • direct costing (or) variable costing

    This type of manufacturing accounting excludes fixed manufacturing overhead from the inventory and cost of goods sold. It is not acceptable for external financial reporting or for income tax reporting in the U.S.

    direct costing (or) variable costing

    This type of manufacturing accounting excludes fixed manufacturing overhead from the inventory and cost of goods sold. It is not acceptable for external financial reporting or for income tax reporting in the U.S.

  • absorption costing (or) full absorption costing

    This type of manufacturing accounting allocates fixed manufacturing overhead to the goods produced (along with the variable product costs). This method is required by US GAAP and U.S. income taxes.

    absorption costing (or) full absorption costing

    This type of manufacturing accounting allocates fixed manufacturing overhead to the goods produced (along with the variable product costs). This method is required by US GAAP and U.S. income taxes.

  • gross profit (or) gross margin

    This is calculated by subtracting the cost of goods sold from net sales.

    gross profit (or) gross margin

    This is calculated by subtracting the cost of goods sold from net sales.

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