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Questions and Answers
What are inventories?
What are inventories?
Asset items that a company holds for sale in the ordinary course of business, or goods that it will use or consume in the production of goods to be sold.
Why do the description and measurement of inventory require careful attention?
Why do the description and measurement of inventory require careful attention?
To ensure accurate valuation of the investment in inventories, which is often the largest current asset of merchandising and manufacturing businesses.
How do merchandising businesses report their unsold units left on hand?
How do merchandising businesses report their unsold units left on hand?
As merchandise inventory, with the cost assigned to the unsold units.
What are the three inventory accounts that manufacturing businesses normally have?
What are the three inventory accounts that manufacturing businesses normally have?
What constitutes the work in process inventory for a manufacturing business?
What constitutes the work in process inventory for a manufacturing business?
How do raw materials inventory items differ from finished goods inventory items?
How do raw materials inventory items differ from finished goods inventory items?
What is one advantage of the FIFO method?
What is one advantage of the FIFO method?
How does the FIFO method impact the matching of costs and revenues on the income statement?
How does the FIFO method impact the matching of costs and revenues on the income statement?
Why does the IASB prohibit the use of LIFO for financial statements based on IFRS?
Why does the IASB prohibit the use of LIFO for financial statements based on IFRS?
What must a company do if it decides to change its inventory pricing method?
What must a company do if it decides to change its inventory pricing method?
Why is consistency important in applying an inventory pricing method?
Why is consistency important in applying an inventory pricing method?
What is the main issue with using FIFO in terms of matching costs and revenues?
What is the main issue with using FIFO in terms of matching costs and revenues?
What method is not permitted for financial reporting purposes under IFRS standards?
What method is not permitted for financial reporting purposes under IFRS standards?
Why do investors want to determine the inventory method used by a retailer?
Why do investors want to determine the inventory method used by a retailer?
What can impact an investor’s ability to compare inventory levels and gross profit?
What can impact an investor’s ability to compare inventory levels and gross profit?
Why might inventory balances not reflect the true state of a company's inventory?
Why might inventory balances not reflect the true state of a company's inventory?
What are some of the methods discussed in the chapter to develop relevant inventory information?
What are some of the methods discussed in the chapter to develop relevant inventory information?
How does information on inventories help predict financial performance, especially profits?
How does information on inventories help predict financial performance, especially profits?
What costs are included in product cost?
What costs are included in product cost?
What is included in the cost of purchase for inventories?
What is included in the cost of purchase for inventories?
What are the conversion costs for a manufacturing company?
What are the conversion costs for a manufacturing company?
What do manufacturing overhead costs include?
What do manufacturing overhead costs include?
Why are selling expenses, interest costs, and general administrative expenses not included in inventory cost?
Why are selling expenses, interest costs, and general administrative expenses not included in inventory cost?
Explain the distinction between product costs and period costs.
Explain the distinction between product costs and period costs.
What is the formula used in the retail inventory method to compute the cost-to-retail ratio?
What is the formula used in the retail inventory method to compute the cost-to-retail ratio?
In the retail inventory method, how is the ending inventory at cost calculated?
In the retail inventory method, how is the ending inventory at cost calculated?
What is the purpose of deducting the sales from the total goods available for sale in the retail inventory method?
What is the purpose of deducting the sales from the total goods available for sale in the retail inventory method?
How does a retailer convert retail prices to cost using the retail inventory method?
How does a retailer convert retail prices to cost using the retail inventory method?
What are the key records that a retailer needs to keep for the retail inventory method?
What are the key records that a retailer needs to keep for the retail inventory method?
In the context of the retail inventory method, why is there an observable pattern between cost and price for most retailers?
In the context of the retail inventory method, why is there an observable pattern between cost and price for most retailers?
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