Chapter 6 Financial Accounting: Inventory and Cost of Goods Sold

These flashcards cover key vocabulary and concepts from Chapter 6 on Inventory and Cost of Goods Sold in Financial Accounting.

Inventory

Items a company intends for sale to customers in the ordinary course of business.

Cost of Goods Sold (COGS)

An expense account representing the cost of inventory sold.

FIFO

First-in, first-out; assumes that the first units purchased are the first ones sold.

LIFO

Last-in, first-out; assumes that the last units purchased are the first ones sold.

Weighted-Average Cost

An inventory cost method that assumes each unit of inventory has a cost equal to the weighted-average cost of all items.

Gross Profit

The difference between net revenues and cost of goods sold.

Operating Income

Calculated as gross profit minus operating expenses.

Net Income

Total revenues minus total expenses, including all operating and non-operating items.

Perpetual Inventory System

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

Periodic Inventory System

A system that does not continually record inventory amounts and relies on physical counts at the end of a period.

Lower of Cost and Net Realizable Value

A rule that requires inventory to be reported at the lower of its historical cost or its net realizable value.

Inventory Turnover Ratio

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

Gross Profit Ratio

The ratio indicating the amount of the sale price of inventory that exceeds its cost, expressed per dollar of sales.

LIFO Reserve

The difference between inventory amounts reported using LIFO and FIFO.

FOB Shipping Point

Title of goods passes to the buyer when the seller ships the inventory.

FOB Destination

Title of goods passes to the buyer when the inventory reaches the buyer's location.