|2 primary objectives of controlling inventory? ||Safeguard Inventory from damage/theft.
Record Inventory in Financial Statements.|
|What ways to safeguard inventory? ||Purchase order authorizes purchase of inventory from approved vendors.
The receiving report establishes the initial record of the receipt of the inventory.
The perpetual inventory system is a good means of control.
|What ways to safeguard inventory cont.? ||Total inventory is in subliminary inventory ledger.|
|What should controls for safeguarding inventory be? ||Storing inventory in authorized/restricted zones.
Locking inventory in cabinets.
Using two way mirrors, cameras, security tags, and guards.|
|In what way can a business report inventory? ||Physical inventory count taken near year end to make sure actual quantity is accurate.|
|Explain inventory cost flow assumption. ||Cost flow is in the order in which the costs incurred. FIFO
Cost flow is in the reverse order in which the costs were incurred. LIFO
Cost flow is an average of all costs. Weighted Average Cost.|
|Specific Identification Inventory Cost Flow Method? ||Unit sold is identified with a specific purchase.
Normally used by auto dealerships, jewelry stores, art galleries.|
|Explain FIFO. ||The first units purchased are assumed to be sold first and the ending inventory is made up of most recent purchases.|
|Explain LIFO. ||The last units purchased are assumed to be sold first and the ending inventory is made up of the first units purchased.|
|Explain weighted average inventory cost. ||Weighted Avg. Unit Cost=Total Cost of Unit Available for sale/Units available for sale.|
|What happens when FIFO is used during a period of inflation/rising prices? ||FIFO will show a larger profit than the other two inventory cost methods.|
|What happens when LIFO method is used during a period of inflation? ||LIFO will show a lower profit than the other two inventory cash methods.|
|What does LIFO offer during a period of rising prices? ||Offers an income tax savings compared to the other two inventory cost methods.|
|Explain weighted average cost method. ||It is a compromise between FIFO and LIFO.
Net income for the weighted Avg. cost method is somewhere between the net income of LIFO and FIFO.|
|What is the primary basis for valuing and reporting inventory in the financial statements? ||Cost|
|Inventory may be valued at other than cost in which? ||The cost of replacing items in inventory is below the recorded cost.
The inventory cannot be sold at normal prices due to imperfections, style changes, or other causes. |
|What is Market as used in the lower-of-cost-or-market method? ||It is the cost to replace the merchandise on the inventory date.|
|Cost and Replacement cost can e determined for the following? ||Each item is inventory.
Each major class or category of inventory.
Total inventory as a whole.|
|What is Net Realizable Value? ||The estimated selling prices less any direct cost of disposal, such as sales commissions or special advertising.|
|What items should be written down to their net realizable value? ||Items out of date, spoiled, or damaged|
|What is the Net Realizable Formula? ||Net Realizable Value=Estimated Selling Price-Direct Cost of Disposal|
|Where is merchandise inventory located on balance sheet? ||Usually presented in the Current Assets section, following receivables.|
|What are some reasons that inventory errors may occur? ||Physical inventory on hand was miscounted.
Costs were incorrectly assigned to inventory.
Inventory in transit was incorrectly included or excluded from inventory.
Consigned inventory was incorrectly included or excluded from inventory.|
|Manufacturer known as? ||Consigner/retains title until goods are sold|
|Retailer known as? ||Consignee/merchandise shipped on consignment to retailer|
|What is Inventory Turnover? ||Measures the relationship between cost of merchandise sold and the amount of inventory carried during the period.|
|What is the inventory turnover Formula? ||Inventory Turnover=Cost of Merchandise Sold/Average Inventory|
|What does the number of days sale in inventory measure? ||The length of time it takes to acquire, sell, and replace the inventory.|
|Days of Sale in Inventory Formula? ||Number of Days Sale in Inventory=Average Inventory/Average Daily Cost of Merchandise Sold.|
|Retail Method of Inventory Costing? ||Requires cost and retail prices to be maintained for the merchandise available for sale.|
|Gross Profit Method of Inventory Costing? ||Uses the estimated gross profit for the period to estimate the inventory at the end of the period.|