Accounting Inventory Methods and Valuation

A set of vocabulary flashcards focused on key accounting concepts related to inventory methods and valuation.

Perpetual Inventory System

An accounting method where inventory is continuously updated for purchases and sales.

Periodic Inventory System

An accounting method where inventory is updated at specific intervals, typically at the end of an accounting period.

LIFO (Last In, First Out)

An inventory valuation method where the most recently purchased items are sold first.

FIFO (First In, First Out)

An inventory valuation method where the oldest inventory items are sold first.

Cost of Goods Sold (COGS)

The total cost of manufacturing and purchasing the products that a company sells during a specific period.

Net Realizable Value (NRV)

The estimated selling price of an inventory item minus any expected costs to complete and sell it.

Asset Retirement Obligation (ARO)

A liability associated with the retirement of tangible long-lived assets.

Cost-Retail Ratio

A method used in the conventional retail inventory method to estimate inventory from the cost and retail prices.

Dollar-Value LIFO

A method of inventory valuation that uses dollar values instead of units to determine inventory flow.

Lower of Cost or Market (LCM) Rule

An accounting principle which states that inventory should be valued at the lower of its historical cost or its current market value.

Avoidable Interest

The portion of interest cost that could have been avoided if expenditures for asset construction had not been made.

Historical Cost Principle

An accounting principle that states that assets should be recorded at their original purchase price.

Consolidated Financial Statements

Financial statements that present the results of operations and financial position of a parent company and its subsidiaries as one entity.

Fair Value

The estimated worth of an asset based on current market conditions.

Improvement Cost

Costs incurred to enhance the value or extend the life of an asset, which should be capitalized.

Replacement Cost

The cost to replace an asset at its current market price.