Accounting Chp 6

Average Cost Method

Inventory costing method that uses the weighted-average unit cost to allocate to ending inventory and cost of goods sold the cost of goods available for sale.

Consigned goods

Goods held for sale by one party although ownership of the goods is retained by another party.

Consistency Concept

Dictates that a company use the same accounting principles and methods from year to year.

Days in inventory

Measure of the average number of days inventory is held; calculated as 365 divided by inventory turnover.

Finished goods inventory

Manufactured items that are completed and ready for sale.

FIFO Method

Inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognized as cost of goods sold.

FOB destination

Freight terms indicating that ownership of the goods remains with the seller until the goods reach the buyer.

FOB shipping point

Freight terms indicating that ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller.

Gross profit method

A method for estimating the cost of the ending inventory by applying a gross profit rate to net sales and subtracting estimated cost of goods sold from cost of goods available for sale.

Inventory Turnover

A ratio that measures the number of times on average the inventory sold during the period; computed by dividing cost of goods sold by the average inventory during the period.

Just in time inventory

Inventory system in which companies manufacture or purchase goods only when needed for use.

LIFO Method

Inventory costing method that assumes the costs of the latest units purchased are the first to be allocated to cost of goods sold.Lwe

Lower of cost/ net realizable value

A basis whereby inventory is stated at the lower of either its cost or its net realizable value.

Moving average method

Inventory costing method in which a new weighted-average unit cost is computed after each purchase, by dividing the cost of goods available for sale by the units on hand.

Net realizable value

Net amount that a company expects to realize (receive) from the sale of inventory. Specifically, it is the estimated selling price in the normal course of business, less estimated costs to complete and sell.

Raw materials

Basic goods that will be used in production but have not yet been placed into production.

Retail inventory method

A method for estimating the cost of the ending inventory by applying a cost-to-retail ratio to the ending inventory at retail.

Specific identification method

An actual physical flow costing method in which items still in inventory are specifically tracked and costed to arrive at the total cost of the ending inventory.

Weighted average unit cost

Average cost that is weighted by the number of units purchased at each unit cost.

Work in process

That portion of manufactured inventory that has been placed into the production process but is not yet complete.