Chapter 6: Merchandise Inventory

These flashcards cover key concepts from Chapter 6 on Merchandise Inventory, focusing on accounting principles, inventory management methods, and their impacts on financial statements.

Consistency Principle

A business should use the same accounting methods and procedures from period to period to enable comparability of financial statements.

Disclosure Principle

Financial statements should report sufficient information for outsiders to make informed decisions about the company.

Materiality Concept

A company must perform proper accounting only for items that are significant to its financial situation.

Accounting Conservatism

A principle that advises reporting the least favorable figures and anticipating no gains while providing for all probable losses.

Lower-of-Cost-or-Market Rule

An accounting rule that requires inventory to be reported at the lower of its historical cost or its current market value.

Inventory Turnover Ratio

A measure of how rapidly inventory is sold, indicating business efficiency.

Days' Sales in Inventory

The average number of days inventory is held before it is sold.

Specific Identification Method

An inventory costing method that tracks the specific cost of identifiable items.

First-In, First-Out (FIFO)

An inventory costing method that assumes the first units purchased are the first to be sold.

Last-In, First-Out (LIFO)

An inventory costing method that assumes the last items purchased are the first sold.

Weighted-Average Method

An inventory costing method that assigns an average cost to inventory.

Perpetual Inventory System

An inventory system that continuously tracks inventory levels for purchases and sales.

Periodic Inventory System

An inventory system that does not track inventory continuously but calculates balances at the end of each period.

Cost of Goods Sold (COGS)

The total cost of products sold during a specific period.

Ending Inventory

The value of inventory available at the end of a period, reflecting the goods not yet sold.