Chapter 5 Accounting for Inventories

These flashcards cover key vocabulary related to inventory accounting methods, allowing for a better understanding of inventory management and financial statements.

Cost of Goods Sold (COGS)

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

FIFO (First-in, First-out)

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

LIFO (Last-in, First-out)

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

Weighted Average Cost

An inventory valuation method that uses the average cost of all units available for sale during the period.

Specific Identification

An inventory method that matches specific items of inventory with specific costs.

Inventory Turnover Ratio

A measure of how many times a company’s inventory is sold and replaced over a period.

Gross Margin

Sales revenue minus the cost of goods sold, indicating the portion of sales revenue that exceeds the COGS.

GAAP (Generally Accepted Accounting Principles)

A collection of commonly-followed accounting rules and standards for financial reporting.

Physical Flow

The actual movement of goods in and out of a company's inventory.

Accounting Method

A systematic way to record and report financial transactions in accordance with accounting principles.