AFA100 - Introductory Financial Accounting - Chapter 6

These flashcards cover key concepts from Chapter 6 of Introductory Financial Accounting, focusing on inventories, cost of sales, and inventory management.

Cost of Sales

The expense recorded when inventory items are sold, calculated as the number of units sold multiplied by their unit costs.

Inventory Turnover Ratio

A measure of how efficiently inventory is managed, calculated by dividing the cost of goods sold by the average inventory.

Specific Identification Method

An inventory costing method that requires the cost of each specific item sold to be identified and recorded as cost of sales.

FIFO (First-In, First-Out)

An inventory costing method based on the assumption that the earliest goods purchased are the first ones sold.

LC&NRV (Lower of Cost and Net Realizable Value)

A valuation method for inventory that requires reporting at the lower of its cost or the net realizable value.

Periodic Inventory System

An inventory system where detailed records of inventory and cost of sales balances are not continuously maintained.

Perpetual Inventory System

An inventory system that maintains continuous, real-time updates to inventory records for purchases and sales.

Work-in-Process Inventory

Goods that are in the process of manufacturing but are not yet complete.

Beginning Inventory (BI)

The amount of inventory that a company has at the start of an accounting period.

Ending Inventory (EI)

The amount of inventory that remains unsold at the end of an accounting period.

Purchase Discounts

Reductions in the purchase price of inventory for early payment by the buyer.

Journal Entry for Inventory Purchase

The accounting entry made to record the increase of inventory and decrease in cash or accounts payable on purchasing inventory.

Net Realizable Value (NRV)

The expected selling price of an inventory item, less any estimated selling costs.

Gross Profit

Sales revenue minus the cost of sales, representing the profit before deducting operating expenses.

Inventory Management

The process of overseeing and controlling the ordering, storage, and use of inventory.

Inventory Valuation

The method used to determine the monetary value of a company's inventory at a given time.

Manufacturing Inventory Types

Including raw materials, work-in-process, and finished goods, which are categorized differently based on production stages.

Returns and Allowances

Adjustments made in the accounting records for goods that are returned or allowances given for damaged items.