Accounting Chapter 5 exam

Merchandise inventory

Represents assets that will be resold to customers

Just in time inventory

An approach that focuses on the minimization of inventory by acquiring inventory just in time as needed.

F.O.B shipping point

Include

F.O.B destination

Exclude

Consignments

Inventory held on behalf of another party for resale for a commission; exclude since there is no ownership of the inventory

Cost flow assumption

Accounting for the inventory cost in the manner that best reflects operations

FIFO

First-in, First-out

LIFO

Last-in, first-out

Lower of cost or market (LCM)

Inventory should not be reported at more than it would cost to replace the inventory at current placement cost

Damaged or obsolete goods

Should not be included in inventory if they cannot be sold, if sellable, then report at net realizable value

Inventory turnover ratio

Indicates how quickly inventory is sold

Inventory turnover formula

Cost of goods sold / average inventory

LIFO reserve

The difference in the reported inventory valuation of FIFO v.s LIFO