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Final Exam - 331
| Term | Definition |
|---|---|
| With perpetual inventory do you record the cost of sale at the time of sale? | Yes. |
| Periodic Inventory System | Adjusts the inventory account and records cost of goods sold only at the END of each reporting period. |
| Which temporary accounts does the periodic inventory system use? | Purchases, Purchase returns, purchase discounts, and freight- in |
| Formula for COGS under periodic inventory | COGS = Beg Inventory + Net Purchases - End Inventory |
| f.o.b shipping point | possession transfers as soon as the goods are shipped. |
| f.o.b destination | possession transfers once the goods reach the destination (seller has transportation costs) |
| Goods on consignment | An arrangement where one company arranges for another company to sell its goods . (goods held on consignment are inculded in the inventory of the consignor. |
| Freight-in on purchases | In perpetual, freight costs are added to inventory account In periodic, freights are added to freight-in and later added to purchases |
| Perpetual inventory system | Continually adjusts inventory and cogs |
| At the end of the year which inventory process requires a JE | Periodic: Debit COGS, Inventory (end). Credit inventory (beg), purchases Perpetual requires no entry |
| Net purchases formula | Total purchases + freight and other costs - returns and discounts |
| Inventory cost flow assumptions | Average cost, FIFO, LIFO |
| Average cost - periodic | The weighted average cost is calculated only at the END of the period |
| Weighted average unit cost formula | Cost of goods available for sale / quantity available for sale |
| Average cost - perpetual | Applied by computing a moving average unit cost each time additional inventory is purchased |
| During rising costs; | FIFO results in a lower cost of goods sod and higher ending inventory than LIFO |
| LIFO conformity rule | If a company uses LIFO to measure taxable income, it also must use LIFO for external financial reporting |
| LIFO liquidation results in... | old costs being matched with current selling prices |
| LIFO reserves = | Inventory account balance under FIFO or Average Cost - Inventory balance under LIFO |
| JE for LIFO reserves | Debit COGS Credit LIFO Reserve |
| Dollar value LIFO | The DVL inventory pool is viewed as comprising layers of dollar value from different years |
| What are the 2 approaches to inventory write down | Lower cost of NRV and Lower of cost or market |
| Inventory write down | When the EXPECTED BENEFIT of unsold inventory is estimated to have fallen BELOW cost, companies must make an adjusting entry |
| LCNRV (lower cost or net realizable value) | For companys that use: anything other than LIFO |
| LCM (lower of cost or market) | For companies that use: LIFO or retail inventory method |
| NRV = | Estimated selling price - costs of completion, disposal, transportation |
| If NRV is lower than cost... | Adjusting entry is needed. Debit COGS Credit: Inventory for the difference |
| If cost is lower than NRV... | No adjusting entry is needed |
| Ceiling calculation for LCM | (NRV) = selling price - estimated selling costs |
| Floor calculation for LCM | NRV - Normal profit margin |
| Benifit of gross profit method | In estimating inventory and cogs for interim reports, avoiding the expense of a physical inventory count |
| Gross profit method calculation | Beg inventory + Net purchases - COGS = Ending inventory |
| The retail inventory method | Used by HIGH VOLUME retailers selling many different items at LOW UNIT PRICES |
| Initial markup | Original amount of markup from cost to selling price |
| Additional markup | increase in selling price subsequent to initial markup |
| Markup cancellation | Elimination of an additional markup |
| Markdown | Decrease in selling price subsequent to initial markup |
| Markdown cancellation | Elimination of a markdown |
| Average cost retail method | Net markups and net markdowns are included in goods available for sale at retail |
| Conventional retail method | Net markdowns are excluded from the calculation of cost to retail percentage |
| LIFO retail method | Adds layers for each additional period and determine if quantity has increased or decreased |
| Most inventory changes have... | Retrospective treatment |
| Steps in changing your inventory method | 1. Revise comparative statements 2. Adjust affected accounts 3. Disclose additional information |
| Changes to the LIFO method... | do NOT report the change retrospectively |
| Financial reporting | refers to the process of providing financial information to EXTERNAL users: INVESTORS AND CREDITORS |
| The conceptual framework | Provides an underlying foundation for U.S. accounting standards and Increases users understanding of financial reporting |
| Earnings manipulation | refers to the intentional manipulation of a company's financial statements to present a desired outcome |
| General journal | Chronologically lists transactions and other events, expressed in terms of debits and credits |
| Income statment | Reports the Revenues, Expenses, gains and losses that have occurred during a reporting period |
| Earnings quality | The ability of reported earnings to predict a company's future earnings |
| Revenue should be recognized when... | the performance obligation is satisfied |
| Allowance method JE to establish allowance for uncollectable accounts | Debit Bad debt expesne Credit Allowance for uncollectable accounts |
| When is Bad Debit expense recognized | when an account is estimated to be uncollectable |
| Interest calculation | Face amount x annual rate x fraction of the annual period |
| What is the purpose of a factoring arrangement | To get quicker access to cash. |
Created by:
sekavecr
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