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tr ch6
Chapter 6
Question | Answer |
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gross profit method | a way to estimate inventory on the basis of the cost-of-goods-sold model: beginning inventory + net purchases = cost of goods available for sale - cost of goods sold = ending inventory |
last in, first-out (LIFO) inventory costing method | inventory costing method: the last costs into inventory are the first costs out to cost of goods sold. leaves the oldest costs--those of beginning inventory and the earliest purchases of the period--in ending inventory |
lower-of-cost-or-market (LCM) rule | rule that an asset should be reported in the financial statement at whichever is lower--its historical cost or its market value |
materiality concept | a company must perform strictly proper accounting only for items that are significant to the business's financial statements |
specific indentification method | inventory cost method based on the specific cost of particular units of inventory. also called the specific-unit-cost-method |
specific-unit-cost-method | inventory cost method based on the specific cost of particular units of inventory. also called the specific-identification method |
average-cost method | inventory costing method based on the average inventory during the period. average cost is determined by dividing the cost of goods available for sale by the number of units available |
conservation | reporting the least favorable figures in the financial statements |
consistency principle | a business should use the same accounting methods and procedures from period to period |
disclosure principle | a business's financial statements must report enough information for outsiders to make knowledgeable decisions about the company |
first-in, first-out (FIFO) inventory costing method | inventory costing method: the first costs into inventory are the first costs out to cost of goods sold. ending inventory is based on the costs of the most recent purchases |