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SBU / Acct, Fin, Ins & Risk Mgt Department / ACC 20131 / goods in transit are included in a purchaser's inventory:

goods in transit are included in a purchaser's inventory:

goods in transit are included in a purchaser's inventory:

Description


Who is the consignor and who is the consignee?




What are goods on consignment?




What does merchandise inventory include?



Amanda Simpson Mrs. Bailey Principles of Accounting 8, March 2017 Wild, Review for Chapter 5 1. What does merchandise inventory include? - all goods that a company owns and holds for sale 2. When are goods in transit included in the purchaser’s inventory? - Goods purchased FOB shipping point are included in the buyer's  inventory when the iteWe also discuss several other topics like What are the benefits of being bilingual?
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ms are shipped.  - Goods purchased FOB destination are not included in the buyer's  inventory until they arrive at their destination 3. What are goods on consignment? - goods shipped by the owner, called the consignor, to another party,  the consignee 4. Who is the consignor and who is the consignee? - Consignor: owner of the goods held by another party who will sell them for the owner - Consignee: Receiver of the goods owned by another who holds them  for purposes of selling them for the owner 5. How are damaged or obsolete goods handled? - They are not counted in inventory if they cannot be sold 6. How does the matching rule apply to inventory? - inventory costs should be recorded against revenue in the period  when inventory is sold 7. Why is a physical inventory taken? - Because events such as theft, loss, damage, and errors can cause the  inventory account balance to differ from the actual inventory available 8. What are the four methods that are commonly used to assign costs to  inventory and to cost of goods sold? - (1) specific identification; (2) first-in, first-out (FIFO); (3) last-in, first-out (LIFO); and (4) weighted average 9. Does the physical flow of inventory have to be the same as the cost flow? - Yes 10. Explain the FIFO method of inventory. - assumes costs flow in the order incurred 11. Explain the LIFO method of inventory. - assumes costs flow in the reverse order incurred 12. Explain the Weighted Average method of inventory. - assumes costs flow at an average of the costs available 13. Explain the Specific Identification method of inventory. - Assigns cost of each items in inventory when the purchase cost of each item in inventory is identified and used to compute cost of goods sold  and/or cost of inventory 14. What are the financial statement effects of costing methods?- when purchase costs regularly rise, and decline 15. What are the tax effects of costing methods? - 16. How does the consistency concept apply to inventory costing? - Prescribes that a company use the same accounting methods period  after period so that financial statements are comparable across periods 17. How does the full-disclosure principle apply to inventory costing? - It prescribes that the notes to the statements report this type of  change, its justification, and its effect on income 18. What is the lower of cost or market concept (LCM)? - The required method to report inventory at market replacement cost  when that market cost is lower than recorded cost 19. What is the definition of ‘market?’ - the current replacement cost of purchasing the same inventory items  in the usual manner 20. How does the conservatism constraint apply to inventory? - Prescribes the less optimistic estimate when two estimates are about  equally likely 21. What are the financial statement (income statement and balance  sheet) effects of inventory errors? - An inventory error causes misstatements in cost of goods sold, gross  profit, net income, current assets, and equity.  - It also causes misstatements in the next period's statements because  ending inventory of one period is the beginning inventory of the next 22. How is the inventory turnover ratio calculated and what does it  mean? - The inventory turnover is the Cost of goods sold divided by average  inventory - It’s the number of times a company’s average inventory is sold during  a period 23. How is “days’ in inventory” calculated and what does it mean? - Days’ sales in inventory is the ending inventory divided by cost of  goods sold times 365 - It’s the estimate of the number of days needed to convert inventory  into receivables or cash 24. How does the perpetual and periodic methods of inventory differ? - The perpetual inventory system continually updates accounting  records for merchandising transactions - The periodic inventory system updates the accounting records for  merchandise transactions only at the end of a period 25. What is the retail inventory method? - The method for estimating ending inventory based on the ratio of the  amount of goods for sale at cost to the amount of goods for sale at  retail 26. What is the gross profit method? - Procedure to estimate inventory by using the past gross profit rate to  estimate the cost of goods sold, which is then subtracted from the cost of goods available for sale

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