Chapter 7: Reporting & Interpreting Cost of Goods Sold & Inventory

Chapter 7

Inventory

Tangible property held for sale in the normal course of business or used in producing units or services. Always classified as current on the Balance Sheet.

Merchandise Inventory

Units/Merchandise acquired in finished condition and held for sale in the ordinary course of business.

Raw Materials

Items acquired for processing into finished goods.

Work in Process

Goods in the process of being manufactured, not yet complete.

Finished Goods

Manufactured goods that are complete and ready for sale.

Specific Identification

Inventory costing method that requires keeping track of the purchase cost of each item.

First-In, First-Out (FIFO)

Assumes the earliest units purchased are the first units sold.

Last-In, First-Out (LIFO)

Assumes the latest units purchased are the first units sold.

Weighted Average Method

Uses the weighted average unit cost of the units available for sale for both COGS and ending inventory.

Lower of Cost or NRV (LCNRV)

An accounting principle where inventory is carried on the balance sheet at the lower of its cost or net realizable value.