Inventory Basics
What is the definition of inventory?
A tangible resource that is held for resale – company’s intention is to sell it for profit
This inventory system updates inventory and COGS after every purchase and sale.
Perpetual
How would you describe straight line depreciation?
Allocating the same about of depreciation expense each year over the useful life of the asset
What journal entry is made when a company purchases inventory?
Debit: Inventory
Credit: Cash or A/P
This type of company purchases finished goods and resells them without further processing.
Merchandiser
This method assumes the oldest inventory is sold first.
Cost - Residual Value
What journal entry is made for depreciation?
Debit Depreciation Expense
Credit Accumulated Depreciation
What is it called when goods are owned by one company but held and sold by another.
Consignment
Under FOB Shipping Point, this party pays the freight cost
The Buyer
If accumulated depreciation increases, this value decreases.
Book Value
What entry is made when a company had to make an ordinary repair on one of its service vehicles?
Debit: Repairs Expense
Credit: Cash
The formula used to determine gross profit
Revenue - COGS
This method is commonly used during inflation because it produces higher COGS and lower taxable income
LIFO
What is never depreciated?
Land
We are a company purchasing inventory on account. Assume that we pay for said inventory within the disocunt period, what journal entry do we make?
Credit: Cash
Credit: Inventory
Manufacturers divide inventory into these three categories.
Raw Materials, Work-in-Process, & Finished Goods
If ending inventory is overstated, this financial statement item is also overstated.
Net Income
What is depreciation not attempting to measure?
Fair Market Value (what the asset is actually worth)
What are the two entries made when a company sells inventory?
1) Debit: Cash
Credit: Sales Revenue
2) Debit: COGS
Credit: Inventory