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ACC-Chapter 6

QuestionAnswer
Average-Cost Method Inventory costing method that uses the weighted average unit cost to allocate to ending inventory and cost of goods sold the cost of goods available for sale
Conservatism Concept that dictates that when in doubt, choose the method that will be least likely to overstate assets and net income
Consigned Goods Goods help for sale by one party (the consignee) although the ownership of the goods is retained by another party (the consignor)
Consistency Principle Dictates that a company use the same accounting principles and methods from year to year
Current Replacement Cost The current cost to replace an inventory item
Days in Inventory Measure of the average number of days inventory is held; calculated as 365 divided by inventory turnover ratio
Finished Goods Inventory Manufactured items that are completed and ready for sale
First in, first out (FIFO) Method Inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognized as cost of goods sold
FOB Destination Freight terms indicating that ownership of the goods passes to the buyer when the public career accepts the goods from the seller
FOB Shipping Point Freight terms indicating that ownership of the goods remains with the seller until the goods reach the buyer
Inventory Turnover Ratio A ratio that measures the number of times on average the inventory sold during the period; computed by dividing the cost of goods sold by average inventory during the period
Just In Time (JIT) Inventory Method Inventory system in which companies manufacture or purchase goods just in time for use
Last in, first out (LIFO) Method Inventory costing method that assumes the costs of the latest units purchased are the first to be allocated to cost of goods sold
Lower of Cost or Market (LCM) Basis A basis whereby inventory is stated at the lower of either its cost or its market value as determined by current replacement cost
Raw Materials Basic goods that will be used in production but have not yet been placed into production
Specific Identification Method An actual physical flow costing method in which items still in inventory are specifically costed to arrive at the total cost of the ending inventory
Weighted Average Unit Cost Average cost that is weighted by the number of units purchased at each unit cost
Work in Progress That portion of manufactured inventory that has been placed in the production process but is not yet complete
Created by: JJACCOUNTING
 

 



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