Inventory are ____ items held for sale in the __________ of business, or goods that will be _________in the production of goods to be sold.
Asset; Ordinary course; Used/Consumed
(Manufacturer) “Merchandise” may be categorized into 3 types, which are… (FWR)
- Finished goods (held for sales)
- Work in progress (in the course of production)
- Raw materials (to be consumed in the production)
(Distributor) ______ and ______ MUST be distinguished.
Inventory; Supplies (there is NO inventory for SERVICES)
(Inventory) What goes under “debit”?
- Beginning inventory
- Acquisition cost
- Goods in transit (considered as asset)
(Inventory) How do you calculate “acquisition cost”?
Quantity x Price
(Inventory) What must be considered to calculate “price” of acquisition cost? (TLIPP)
- Trade discount
- Losses during goods in transit (shipping, destination)
- Incidental costs
- Purchase allowance & return
- Purchase discount
What are the types of “trade discounts”? (PQ)
- Price discount
2. Quantity discount (for bulk orders)
Price under “acquisition cost” must be _____
Invoice price (actually transacted price)
Conditions for liability may be contractually established in 2 ways:
- FOB Shipping point, (once shipped, buyer is liable)
2. FOB Destination point (until arrival at buyer’s place, seller is liable)
What are some examples of “incidental costs”? (FIH)
- Freight-in cost
- Insurance cost
- Handling cost
“Purchase allowance and return” is recorded when _____
Seller authorizes it
(Destination point) “Freight-out cost”/transportation cost (transportation from warehouse to port) is considered _____
Selling expense (incurred by seller)
What is a “credit term?”
Offer of a cash discount on payments within a specified period
(Credit term) What does “2/10, n/30” mean?
- Discount of 2% if payment is made within 10 days
2. If discount is not taken, then the entire (gross) amount is due in 30 days
What are the two methods of “purchase discount”? (GN)
- Gross method - Records sales without regard to discounts
2. Net method - Records sale net of the discount
For cost allocation, what are the 2 types of “quantity” determination? (PP)
- Perpetual inventory system
2. Periodic inventory system (physical counting method)
Perpetual inventory system ________ tracks changes in the inventory account. CGS is recorded at ________ by debiting _______ and crediting _______
Continuously; Time of each sale; CGS; Inventory
Periodic inventory system determines inventory quantity only ______ by subtracting the ________ from the _________ available for sale. CGS is a ______ that depends on physical count at the end.
Periodically; Ending inventory; CGS; Residual amount
What are the 3 methods for “price determination”? (SCG)
- Specific identification method
- Cost flow assumption
- Gross profit method
What are the 3 types of “cost flow assumption”? (FAL)
- FIFO (First In, First Out) method
- Average method (moving average - perpetual system; total average - periodic system)
- LIFO (last In, First Out) method
When do companies/auditors use “gross profit method”?
- When fire/other disaster destroys either inventory or inventory records
- Auditors use it when they need an estimate of the company’s inventory (e.g., interim reports)
(Valuation) When the _______ of goods is no longer great as their _____, then a departure from the cost basis principle to measure inventory is required.
Utility; Cost
(Valuation) New valuation is accomplished by stating such goods at _____ or _______. (LCN)
Lower cost; Net realizable value (NRV)
For US GAAP, restoration is/is not permitted.
For IFRS, restoration is/is not permitted.
IS NOT;
IS
