Accounting Chapter 6 Flashcards

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Questions and Answers

Where is inventory reported in the financial statement?

Balance sheet as a current asset

What are products that have been started in production but are still incomplete called?

Work-in-process

A multiple step income statement reports multiple levels of __________.

Income

What are nonoperating revenues and expenses?

The category of revenues and expenses reported immediately after operating income. Signup and view all the answers

Which methods are used for costing inventory?

Weighted Average Signup and view all the answers

What does FIFO stand for?

First In, First Out Signup and view all the answers

What is the Average Cost Method?

Costing inventory method that assumes that ending inventory consists of a mixture of all the goods available for sale. Signup and view all the answers

What is a LIFO Reserve?

The cumulative difference between reporting inventory at LIFO rather than FIFO. Signup and view all the answers

What costs are related to the manufacturing of products?

Raw materials, direct labor, and manufacturing overhead. Signup and view all the answers

What is Gross Profit?

Net Sales Revenue minus Cost of Goods Sold. Signup and view all the answers

What is the Specific Identification Method?

The inventory costing method that matches each unit of inventory with its actual cost. Signup and view all the answers

A company is most likely to utilize the specific identification method if its inventory consists of __________.

unique products and very expensive products. Signup and view all the answers

What is the LIFO Method?

The inventory costing method that assumes that the units that remain in ending inventory are the oldest units in inventory. Signup and view all the answers

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be lower than ending inventory determined using the FIFO inventory assumption.

True Signup and view all the answers

What is a perpetual inventory system?

Inventory system that recognizes cost of goods sold and decreases inventory each time a sale occurs. Signup and view all the answers

What is a periodic inventory system?

An inventory system that does not continuously track the cost of merchandise sold. Signup and view all the answers

What is the title passage rule for FOB shipping point?

Title to goods passes when they are shipped. Signup and view all the answers

What is inventory?

Items held for sale in the normal course of business. Signup and view all the answers

What is the Inventory Turnover Ratio?

The number of times a firm sells its average inventory balance during a reporting period. Signup and view all the answers

What is a Merchandising Company?

Companies that serve as intermediaries between manufacturers and end users. Signup and view all the answers

What do Manufacturers do?

Companies that produce the inventory they sell. Signup and view all the answers

Study Notes

Inventory Reporting

Inventory is reported as a current asset on the balance sheet.
Items held for sale are classified as inventory in the normal course of business.

Types of Inventory

Work-in-process refers to products that are partially completed in production.
Inventory costing methods include FIFO, LIFO, Weighted Average, and Specific Identification.

Income Statement Structure

A multiple-step income statement delineates various levels of income.
Nonoperating revenues and expenses appear immediately after operating income.

Costing Methods

FIFO (First-In, First-Out) assumes that the first units acquired are the first sold.
LIFO (Last-In, First-Out) assumes that the oldest units remain in ending inventory.
Average Cost Method averages the cost of goods available for sale to determine ending inventory.
Specific Identification Method matches each inventory unit with its actual cost, suited for unique and expensive items.

LIFO Reserve

The LIFO Reserve is the cumulative difference between LIFO and FIFO reporting methods.
It reflects the cost variance of inventory based on the LIFO method compared to FIFO.

Cost Components

Key costs in manufacturing products include raw materials, direct labor, and manufacturing overhead.
Gross Profit is calculated as Net Sales Revenue minus Cost of Goods Sold.

Inventory Systems

A perpetual inventory system continuously tracks inventory levels and cost of goods sold with each sale.
A periodic inventory system does not continuously monitor merchandise cost, updating at specific intervals.

Sale Conditions

FOB shipping point means the title to goods transfers to the buyer once shipped.

Inventory Turnover

The Inventory Turnover Ratio indicates how often a firm sells its average inventory during a period, calculated as cost of goods sold divided by average inventory.

Company Types

Merchandising companies function as intermediaries between manufacturers and end users.
Manufacturers produce the inventory that they sell.

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Description

Test your knowledge of key concepts from Accounting Chapter 6 with these flashcards. Topics include inventory reporting, work-in-process, and income statement levels. Ideal for students looking to reinforce their understanding of accounting principles.