FIFO
What does FIFO stand for?
First In First Out
What does LIFO?
Last In Last Out
Do you create layers?
No
What is a service business?
A business that sells intangible products, expertise, or personal labor rather than physical products.
What is a merchandising business?
A commercial enterprise that buys finished products in bulk from manufacturers or wholesalers and resells them to consumers or other businesses at a higher retail price.
The costs of your newest purchases stay in what asset account?
Ending Inventory
The costs of your newest purchases are moved into what income statement expense account?
COGS
What is the primary difference in how the weighted average unit cost is calculated and applied between a periodic inventory system and a perpetual inventory system?
Name examples of a service business.
Cleaning, Bookkeping, IT Support, etc.
Name examples of a merchandising business.
Grocery Store, Clothing Store, Wholesale Distributors, etc.
What is Income Tax Expense?
Because FIFO assigns older, lower costs to the Cost of Goods Sold during inflation, it results in higher profits, which unfortunately leads to a higher amount of this expense owed to the government.
During periods of rising prices, companies often choose LIFO specifically to reduce what type of expense by reporting higher Costs of Goods Sold?
Income Tax Expense
A company has a beginning inventory of 100 units at $10 each ($1,000) and purchases 400 units at $15 each ($6,000) during the period (Total available = 500 units, $7,000 total cost, giving a $14 weighted average cost per unit). If 300 units are sold, what is the value of the ending inventory under the periodic weighted average method?
$2,800
What account is credited when a service business performs work for a client and immediately collects cash?
Service Revenue
What is inventory?
Current Asset
True or False. A business keeps its oldest inventory on the shelves forever.
False
Why is LIFO permitted under US GAAP but strictly prohibited under International Financial Reporting Standards (IFRS)?
The International Accounting Standards Board determined it does not faithfully represent the actual physical flow of inventory.
A company starts with a perpetual inventory balance of 100 units at $10 each ($1,000). It then purchases an additional 150 units at $20 each ($3,000). What is the new weighted average unit cost immediately after this purchase?
$16 per unit
What account is debited when a service business provides a service to a client "on account"?
Accounts Receivable
On a balance sheet, a merchandising company will report this current asset account that a pure service company completely lacks.
Merchandise Inventory
You buy 10 units at $8 each, then 15 units at $12 each. You sell 10 units. What is the COGS?
$80
LIFO Conformity Rule
When prices are rising over time (an inflationary environment), how does the weighted average cost method generally value Cost of Goods Sold (COGS) and Ending Inventory relative to the FIFO (First-In, First-Out) method?
COGS is higher than FIFO, Ending Inventory is lower than FIFO.
What is the financial statement lists all of a service business's revenues and operating expenses for a specific period of time to show net income or net loss?
Income Statement
What is gross profit? (Equation)
This financial metric, calculated by subtracting the Cost of Goods Sold (COGS) from net sales, tells a merchant how much profit they made before operating expenses.