Accounting for Inventory

Vocabulary

100

A merchandise inventory determined by counting, weighting or measuring of merchandise on hand

Periodic Inventory

200

A merchandise inventory determined by keeping a continuous record of increases, decreases and balance on hand

Perpetual Inventory

300

Using the price of merchandise purchased first to calculate the cost of merchandise sold first

First in first out inventory costing method

400

Estimating inventory by using the previous year's percentage of gross profit on operations

Gross Profit method of estimating inventory

500

A form used to show the kind of merchandise, quantity received, quantity sold and balance on hand

Stock Record

Inventory 1

100

A file of stock records for all merchandise on hand

Stock Ledger

200

Calculating an accurate inventory cost to assure that gross profit and net income are reported correctly on the income statement is an application of what accounting concept?

Adequate Disclosure

300

The cost of merchandise inventory is reported on what report

Income Statement

400

Merchandise inventory that is smaller than needed may decrease the net income of a business for several reasons. Name 2...

1. Sales my be lost to competitors if the product they want is not on hand 2. Sales may be lost if there is insufficient variety of merchandise 3. Ordering small quantities of merchandise can sometimes result in higher prices per unit.

500

A merchandise inventory that is larger than needed may decrease the net income of the business for several reasons. Name 3 reasons?

1. Storage and Warehouse Space expense 2. Uses capital that could be invested in other assets to earn profit 3. Insurance premium and tax expense 4. Inventory may become obsolete and unsellable

Inventory 2

100

Using the average cost of beginning inventory plus merchandise purchased to calculate the cost of merchandise sold

Weighted average inventory costing method

200

Explain the difference between perpetual inventory and periodic inventory

Perpetual inventory is ongoing, usually by computer; periodic inventory is physically counting the product on hand

300

When the FIFO method is used, ending inventory units are priced at ....

the most recent price

400

A business should select on method and use that same method continuously for each fiscal period. This is an application of what accounting concept?

Consistent Reporting