ch6 keywords

Average cost formula

An inventory cost formula that assumes goods available for sale are homogeneous. It determines COGS and ending inventory using a weighted average unit cost.

Consigned goods

Goods shipped by a consignor to a consignee, who holds them for sale but does not own them.

Consignee

The party that holds consigned goods for sale but does not own them.

Consignor

The party that owns the consigned goods and sends them to a consignee for sale.

Days in inventory

A liquidity measure of the average number of days inventory is held, calculated as 365 divided by the inventory turnover ratio.

First-in, first-out (FIFO) cost formula

An inventory cost formula where the costs of the oldest goods are recognized as COGS first.

Internal controls

Systems designed to ensure reliable financial reporting, effective operations, and regulatory compliance.

Inventory turnover

A measure of how many times inventory is sold during a period, calculated by COGS divided by average inventory.

Lower of cost and net realizable value (LCNRV)

A measure for stating inventory at the lower of its original cost and its net realizable value.

Net realizable value (NRV)

The selling price of an inventory item minus the costs required to make it saleable.

Specific identification cost formula

An inventory cost formula for unique items, specifically costing each item to determine COGS and ending inventory.

Weighted average unit cost

The average cost of inventory weighted by the number of units purchased, calculated as total cost divided by total units.