________ consists of products that are already made. Merchandisers then sell these finished goods to their customers.
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Raw materials Work in Process Finished Goods
Manufacturers have three types of inventory:
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Raw materials
________ are materials that are waiting to be processed, such as plastic, steel, and fabric. ________ are used to create the goods that are in the process of being manufactured, which results in the completed products.
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Work in Process
________ goods are not up for sale yet, but are in the process of getting to that stage.
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Finished
________ goods are the inventory that are completed and ready to be sold to customers.
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Consignment inventory
________ are any products being held by a company so they do not claim ownership over the owners' product. In the case the inventory is difficult to sell, the ownership is not under them.
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Goods in transit
________ are goods being transported to the location of the buyer, whether this is someones front door or a store getting ready to sell those items (Walmart).
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What inventory managers must do
Ensure inventory count is meeting demand, the quality is satisfactory, and minimize costs of acquiring, transporting, and storing inventory.
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current asset
Inventory is reported on the Balance Sheet as a ________ because it will be sold to generate cash within a year.
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Cost of Goods Sold expense
When inventory is sold, the cost moves from the Inventory account (balance sheet) and becomes ________ (income statement).
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Equation to calculate Gross Profit
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Periodic Updating
________ is used for small businesses (mom and pop shops). It uses the Cost of Goods Sold equation.
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Cost of Goods Sold =
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Perpetual Updating
________ is used for bigger companies (Walmart). IT uses the Ending Inventory equation.
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\
Equation to calculate Ending Inventory
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four inventory costing methods
The ________ tell us the value of what was sold and what should be sitting in Cost of Goods expense. They are all accepted by the GAAP.
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Specific identification
________ individually identifies and records the cost of each item sold as Cost of Goods Sold. The cost of each item must be tracked.
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luxury items (cars, jewelry)
The specific identification method is best used for _________.
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Cost Flows Assumptions
The last three methods are not based on physical flow of goods, but based on ________, which are assumptions accountants make about the flow of inventory costs.
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First in, first out (FIFO)
________ says that inventory goes out (is sold) in the order the goods are received.
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Last in, first out (LIFO)
________ says the last goods received are the first to be sold.
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Weighted average
________ says that the average for Cost of Goods Available for Sale is used for each good sold and for the goods that are still in inventory.
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Cost of Goods Available for Sale/Number of Units Available for Sale
Equation to calculate Cost per unit
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Number of units x Cost per units
Equation to calculate total cost
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Cost of Goods Sold
Cost that goes into Inventory will not go into ________.
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highest
The method that results in the ________ cost in Inventory will have the lowest cost in Cost of Goods Sold.
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lowest
The method that results in the highest cost in Cost of Goods Sold will have the ________ cost in Inventory.
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rising costs
A company will have larger inventory and smaller cost of goods because of ________.
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falling costs
A company will have smaller inventory and larger cost of goods because of ________.
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lower income tax
Using a method that results in lower inventory and higher cost of goods sold is beneficial because of _______.
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financial results
A company may only switch from one method to another if it improves the accuracy of the company's ________.
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LIFO conformity rule
The ________ says the method used for the companys income tax return must also be used for the financial statement.
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It is replaced by similar goods and a lower cost. The goods are outdated or damaged
The value of inventory may be lower than the cost of the inventory because.....
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lower cost or market (LCM)/net realizable value (NRV)
As required by the GAAP, there is a rule for reporting inventory at the ________.
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fallen below
If the inventory value has ________ its cost, it must be marked down to the lower value.
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Market value
________ is a replacement cost.
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Net realizable value
________ is the inventory value to be realized when sold.
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Inventory turnover
________ is the cycle of an increasing balance when a company buys goods and a decreasing balance when a company sells goods.
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inventory turnover analysis
To evaluate change in inventory, we use ________. An inventory turnover ratio shows how many times inventory is bought and sold.
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bought and sold quickly
A higher inventory turnover rate indicates inventory is ________.
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Equation to calculate Inventory Turnover Ratio The higher the ratio, the better.
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"Days to Sell"
________ focuses on the length of time it takes to sell inventory.
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Equation to calculate Days to Sell:
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longer amount of time taken to sell goods
A higher number for "days to sell" represents a(n) ________.
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Flashcard (20)