Chapter 7: Inventory and Cost of Goods Sold

________ consists of products that are already made. Merchandisers then sell these finished goods to their customers.

Manufacturers have three types of inventory:

________ are materials that are waiting to be processed, such as plastic, steel, and fabric. ________ are used to create the goods that are in the process of being manufactured, which results in the completed products.

________ goods are not up for sale yet, but are in the process of getting to that stage.

________ goods are the inventory that are completed and ready to be sold to customers.

________ are any products being held by a company so they do not claim ownership over the owners' product. In the case the inventory is difficult to sell, the ownership is not under them.

________ are goods being transported to the location of the buyer, whether this is someones front door or a store getting ready to sell those items (Walmart).

Ensure inventory count is meeting demand, the quality is satisfactory, and minimize costs of acquiring, transporting, and storing inventory.

Inventory is reported on the Balance Sheet as a ________ because it will be sold to generate cash within a year.

When inventory is sold, the cost moves from the Inventory account (balance sheet) and becomes ________ (income statement).

Equation to calculate Gross Profit

________ is used for small businesses (mom and pop shops). It uses the Cost of Goods Sold equation.

Cost of Goods Sold =

________ is used for bigger companies (Walmart). IT uses the Ending Inventory equation.

Equation to calculate Ending Inventory

The ________ tell us the value of what was sold and what should be sitting in Cost of Goods expense. They are all accepted by the GAAP.

________ individually identifies and records the cost of each item sold as Cost of Goods Sold. The cost of each item must be tracked.

The specific identification method is best used for _________.

The last three methods are not based on physical flow of goods, but based on ________, which are assumptions accountants make about the flow of inventory costs.

________ says that inventory goes out (is sold) in the order the goods are received.

________ says the last goods received are the first to be sold.

________ says that the average for Cost of Goods Available for Sale is used for each good sold and for the goods that are still in inventory.

Equation to calculate Cost per unit

Equation to calculate total cost

Cost that goes into Inventory will not go into ________.

The method that results in the ________ cost in Inventory will have the lowest cost in Cost of Goods Sold.

The method that results in the highest cost in Cost of Goods Sold will have the ________ cost in Inventory.

A company will have larger inventory and smaller cost of goods because of ________.

A company will have smaller inventory and larger cost of goods because of ________.

Using a method that results in lower inventory and higher cost of goods sold is beneficial because of _______.

A company may only switch from one method to another if it improves the accuracy of the company's ________.

The ________ says the method used for the companys income tax return must also be used for the financial statement.

The value of inventory may be lower than the cost of the inventory because.....

As required by the GAAP, there is a rule for reporting inventory at the ________.

If the inventory value has ________ its cost, it must be marked down to the lower value.

________ is a replacement cost.

________ is the inventory value to be realized when sold.

________ is the cycle of an increasing balance when a company buys goods and a decreasing balance when a company sells goods.

To evaluate change in inventory, we use ________. An inventory turnover ratio shows how many times inventory is bought and sold.

A higher inventory turnover rate indicates inventory is ________.

Equation to calculate Inventory Turnover Ratio The higher the ratio, the better.

________ focuses on the length of time it takes to sell inventory.

Equation to calculate Days to Sell:

A higher number for "days to sell" represents a(n) ________.