Ch 6: Inventory and Cost of Goods Sold

These flashcards cover key concepts related to inventory and cost of goods sold as outlined in Chapter 6 of the Financial Accounting lecture notes.

Inventory

Items a company intends for sale in the ordinary course of business and may also include unfinished goods.

Cost of Goods Sold (COGS)

The cost of inventory that has been sold during a specific period.

FIFO (First-In, First-Out)

An inventory method that assumes the first units purchased are the first ones sold.

LIFO (Last-In, First-Out)

An inventory method that assumes the last units purchased are the first ones sold.

Weighted-Average Cost Method

An inventory costing method that assigns a uniform cost to all units available for sale, calculated as total cost of goods available for sale divided by total units available.

Perpetual Inventory System

An inventory system that maintains a continual record of inventory on hand and inventory purchased and sold.

Periodic Inventory System

An inventory system that does not constantly update inventory records and calculates inventory based on physical counts at the end of the period.

Gross Profit Ratio

A measure of a company's financial health, calculated as gross profit divided by net sales.

Inventory Turnover Ratio

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

LIFO Conformity Rule

A tax regulation requiring that if a company uses LIFO for tax purposes, it must also use LIFO for financial reporting.

Ending Inventory

The amount of inventory that is not sold by the end of the accounting period.