Chapter 6 – Inventory & Cost of Goods Sold (Cornerstones of Financial Accounting, 3rd Cdn Ed.)

0.0(0)
studied byStudied by 0 people
GameKnowt Play
learnLearn
examPractice Test
spaced repetitionSpaced Repetition
heart puzzleMatch
flashcardsFlashcards
Card Sorting

1/45

flashcard set

Earn XP

Description and Tags

Vocabulary flashcards covering key terms and concepts from Chapter 6, including inventory types, cost flow models, inventory systems, costing methods, valuation rules, and analytical ratios.

Study Analytics
Name
Mastery
Learn
Test
Matching
Spaced

No study sessions yet.

46 Terms

1
New cards

Inventory

Products held for resale; reported as a current asset until sold.

2
New cards

Cost of Goods Sold (COGS)

Expense representing the cost of inventory sold during a period.

3
New cards

Gross Margin (Gross Profit)

Revenue minus cost of goods sold; measures ability to cover operating expenses.

4
New cards

Merchandiser

Company that buys finished goods for resale (retailer or wholesaler).

5
New cards

Retailer

Merchandiser that sells directly to consumers.

6
New cards

Wholesaler

Merchandiser that sells to other retailers.

7
New cards

Manufacturer

Company that converts raw materials into finished products for sale.

8
New cards

Raw Materials Inventory

Basic inputs awaiting production in a manufacturing firm.

9
New cards

Work-in-Process Inventory

Goods in production consisting of raw materials, direct labour, and overhead.

10
New cards

Finished Goods Inventory

Completed products ready for sale by a manufacturer.

11
New cards

Cost of Goods Available for Sale

Beginning inventory plus purchases (or production) during the period.

12
New cards

Cost of Goods Sold Model

Beginning Inventory + Purchases – Ending Inventory = COGS.

13
New cards

Perpetual Inventory System

Continuously updates inventory and COGS with each purchase and sale.

14
New cards

Periodic Inventory System

Updates inventory and determines COGS only at period-end via physical count.

15
New cards

Just-in-Time (JIT) Inventory

Inventory management system aiming to receive goods only as needed to minimize carrying costs.

16
New cards

Purchase Discount

Price reduction offered for prompt payment (e.g., 2/10, n/30).

17
New cards

Purchase Return

Goods returned to supplier for credit or cash refund.

18
New cards

Purchase Allowance

Seller-granted price reduction for kept but unsatisfactory goods.

19
New cards

Freight-in

Transportation cost paid by buyer; added to cost of inventory (FOB shipping point).

20
New cards

Freight-out

Transportation cost paid by seller; recorded as selling expense (FOB destination).

21
New cards

FOB Shipping Point

Ownership transfers to buyer at shipment; buyer pays freight, revenue recognized at shipment.

22
New cards

FOB Destination

Ownership transfers at delivery; seller pays freight, revenue recognized at delivery.

23
New cards

Consignment

Goods owned by consignor but held and sold by consignee for a fee.

24
New cards

Specific Identification Method

Assigns actual cost of each identified unit to COGS or ending inventory.

25
New cards

First-In, First-Out (FIFO)

Assumes earliest costs are the first costs transferred to COGS; newest costs remain in inventory.

26
New cards

Weighted Average Cost (Moving Average)

Allocates costs using average cost per unit recalculated after each purchase.

27
New cards

Inventory Costing Method

Rule (Specific ID, FIFO, Weighted Avg) used to allocate costs between COGS and ending inventory.

28
New cards

Lower of Cost and Net Realizable Value (LCNRV)

Inventory reported at the lower of historical cost or estimated selling price minus disposal costs.

29
New cards

Net Realizable Value (NRV)

Expected selling price of inventory less estimated costs to sell or complete.

30
New cards

Gross Profit Ratio

Gross profit ÷ Net sales; indicates margin on sales.

31
New cards

Inventory Turnover Ratio

COGS ÷ Average inventory; measures how many times inventory is sold during a period.

32
New cards

Average Days to Sell Inventory

365 ÷ Inventory turnover; average number of days items remain in inventory.

33
New cards

Inventory Error – Understatement

Current period assets & net income understated; opposite effects next period.

34
New cards

Inventory Error – Overstatement

Current period assets & net income overstated; opposite effects next period.

35
New cards

Purchase Account (Periodic)

Temporary account accumulating inventory purchases during the period.

36
New cards

Purchase Discounts Account (Periodic)

Temporary account tracking cash discounts taken on purchases.

37
New cards

Purchase Returns & Allowances Account (Periodic)

Temporary account recording cost of returns or allowances.

38
New cards

Transportation-in Account (Periodic)

Temporary account accumulating freight-in costs.

39
New cards

Moving-Average Cost per Unit

(Cost of goods available ÷ Units available) recomputed after each purchase under perpetual weighted average.

40
New cards

Factory Overhead

Indirect production costs included in work-in-process (e.g., utilities, depreciation).

41
New cards

Direct Labour

Labour costs traceable to converting raw materials into finished goods.

42
New cards

Income Tax Effect of Costing Methods

FIFO yields higher taxable income in rising prices; choice affects timing, not total amount, of taxes.

43
New cards

Inventory Carrying Costs

Expenses such as financing, storage, insurance, and obsolescence risk linked to holding inventory.

44
New cards

Freight Terms Impact on Revenue Recognition

Under FOB shipping point, revenue recognized at shipment; under FOB destination, at delivery.

45
New cards

Gross Profit Method (Estimate)

Uses historical gross profit ratio to estimate ending inventory for interim reporting.

46
New cards

IAS 2 / Section 3031

IFRS and ASPE standards governing inventory measurement and disclosure; largely converged.