Inventory and Cost of Goods Sold

This set of flashcards covers key vocabulary terms and concepts related to inventory and cost of goods sold in financial accounting.

Inventory

Items a company intends for sale to customers in the ordinary course of business, including unfinished products, typically reported as a current asset on the balance sheet.

Cost of Goods Sold (COGS)

The cost of inventory sold during a period, reported as an expense in the income statement.

FIFO (First-in, First-out)

An inventory cost flow assumption where the oldest inventory items are sold first.

LIFO (Last-in, First-out)

An inventory cost flow assumption where the newest inventory items are sold first.

Weighted-Average Cost

An inventory cost flow assumption that averages the cost of all inventory items available for sale.

Current Asset

A balance sheet item that represents assets expected to be converted into cash or used within one year.

Perpetual Inventory System

A method that maintains continuous records of inventory on hand and inventory purchased and sold.

Periodic Inventory System

A method that does not continually record inventory amounts but adjusts the inventory balance at the end of the period based on a physical count.

Gross Profit Ratio

A financial metric that indicates the amount by which the sale price of inventory exceeds its cost per dollar of sales.

Lower of Cost and Net Realizable Value

The accounting principle that inventory should be reported at the lower value between its cost and its net realizable value.