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Ch 6 - Flashcards

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Class:ACCT 2010 - Fundamentals of Acct I
Subject:ACCT Accountancy
University:University of Memphis
Term:Spring 2010
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Average cost method Inventory costing method that assumes both cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale.
Average days in inventory Approximate number of days the average inventory is held. It equals 365 days divided by the inventory turnover ratio.
Cost of goods sold Cost of the inventory that was sold during the period.
Finished Goods Inventory items for which the manufacturing process is complete.
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First-in, First-out Method FIFO Inventory costing method that assumes the first units purachased are the first ones sold.
Freight-in Cost to transport inventory to the company, which is included as part of inventory cost.
Freight-out Cost of freight on shipments to customers, and is included as a selling expense rather than part of the inventory costs.
Gross Profit The idfference between net sales and cost of goods sold.
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Gross profit ratio Measure of the amount by which the sale price of inventory exceeds its cost per dollar of sales. It equals gross profit divided by net sales.
Income before income taxes Operating income plus non-operating revenues less non-operating expenses.
Inventory Items a company intends for sale to customers
Inventory turnover ratio The number of times a firms sells it average inventory balance during a reporting period. It equals cost of goods sold divded by average inventory.
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LIFO conformity rule IRS rule requiring a company that uses LIFO for tax reporting to also use LIFO for financial reporting.
Last-in, first-out method LIFO Inventory costing method that assumes the last units purchased are the first ones sold.
LIFE reserve Additional amount of inventory a company would report if it used FIFO instead of LIFO
Lower-of-cost-or-market rule Rule where companies report inventory in the balance sheet at the lower of cost or market value, where market value equals replacement cost.
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Net Income Difference between all revenues and all expenses for the period.
Operating in come Profitability from normal operations that equals gross profit less operating expenses
Periodic inventory system Inventory system that periodically adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand.
Perpetual inventory system Inventory system that maintains a continual record of inventory purchased and sold.
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Raw Materials Components that will become part of the finished product but have not yet been used in production.
Replacement cost The cost to replace an inventory item in its identical form
Specific identification method Inventory costing method that matches or identifies each unit of inventory with its actual cost
Work-in-process Products that have started the production process but are not yet complete at the end of the period
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 Average cost methodInventory costing method that assumes both cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale.
 Average days in inventoryApproximate number of days the average inventory is held. It equals 365 days divided by the inventory turnover ratio.
 Cost of goods soldCost of the inventory that was sold during the period.

 Finished GoodsInventory items for which the manufacturing process is complete.
 First-in, First-out Method FIFOInventory costing method that assumes the first units purachased are the first ones sold.
 Freight-inCost to transport inventory to the company, which is included as part of inventory cost.
 Freight-outCost of freight on shipments to customers, and is included as a selling expense rather than part of the inventory costs.
 Gross ProfitThe idfference between net sales and cost of goods sold.
 Gross profit ratioMeasure of the amount by which the sale price of inventory exceeds its cost per dollar of sales.

It equals gross profit divided by net sales.
 Income before income taxesOperating income plus non-operating revenues less non-operating expenses.
 InventoryItems a company intends for sale to customers
 Inventory turnover ratioThe number of times a firms sells it average inventory balance during a reporting period.

It equals cost of goods sold divded by average inventory.
 LIFO conformity ruleIRS rule requiring a company that uses LIFO for tax reporting to also use LIFO for financial reporting.
 Last-in, first-out method LIFOInventory costing method that assumes the last units purchased are the first ones sold.
 LIFE reserveAdditional amount of inventory a company would report if it used FIFO instead of LIFO
 Lower-of-cost-or-market ruleRule where companies report inventory in the balance sheet at the lower of cost or market value, where market value equals replacement cost.
 Net IncomeDifference between all revenues and all expenses for the period.
 Operating in comeProfitability from normal operations that equals gross profit less operating expenses
 Periodic inventory systemInventory system that periodically adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand.
 Perpetual inventory systemInventory system that maintains a continual record of inventory purchased and sold.
 Raw MaterialsComponents that will become part of the finished product but have not yet been used in production.
 Replacement costThe cost to replace an inventory item in its identical form
 Specific identification methodInventory costing method that matches or identifies each unit of inventory with its actual cost
 Work-in-processProducts that have started the production process but are not yet complete at the end of the period
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