Reporting and Analyzing Inventory and Receivables

This set of flashcards covers vocabulary related to the reporting and analyzing of inventory and receivables in accounting.

Inventory

The goods and materials that a business holds for the purpose of resale.

Cost Flow Methods

Methods to determine how costs associated with inventory are assigned to the cost of goods sold and ending inventory, including FIFO, LIFO, and Average-Cost.

FIFO (First-In, First-Out)

A method where the earliest goods purchased are the first to be sold.

LIFO (Last-In, First-Out)

A method where the latest goods purchased are the first to be sold.

Average-Cost Method

A method that allocates the cost of goods available for sale on the basis of weighted-average unit cost.

Accounts Receivable

Amounts customers owe to a company as a result of purchasing goods or services on credit.

Bad Debt Expense

An estimate of the uncollectible accounts receivable that a business expects to write off.

Allowance for Doubtful Accounts

A contra asset account that offsets accounts receivable to account for estimated uncollectible amounts.

Consigned Goods

Inventory that is held by one party but owned by another party.

Goods in Transit

Purchased goods that have not yet been received, or sold goods that have not yet been delivered.

Freight Costs

Shipping expenses associated with transporting goods, relevant for determining ownership under FOB terms.

Physical Inventory

A count of inventory items on hand, used to ensure accuracy of inventory records.

Periodic System

An inventory accounting system that updates inventory balances at specified intervals.

Perpetual System

An inventory accounting system that continuously updates inventory records as transactions occur.

Net Realizable Value

The estimated selling price of inventory in the ordinary course of business, less estimated costs of completion and selling.

Estimation of Uncollectible Accounts

The process of determining how much of accounts receivable may not be collectible, typically performed using either percentage-of-receivables or aging method.

Inventory Turnover Ratio

A measure of how quickly a company sells its inventory, calculated as cost of goods sold divided by average inventory.

Days in Inventory

The average number of days it takes for a company to sell its entire inventory.

Sales Returns

Goods returned by customers, which reduce the total revenue and accounts receivable.

Merchandise Inventory

Inventory that consists of goods purchased for resale by a merchandising company.

Manufacturing Inventory

Inventory classified into raw materials, work in process, and finished goods for manufacturing companies.