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tr ch6

Chapter 6

QuestionAnswer
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
Created by: tomrobbins