Inventory Management Methods Quiz

False (B)

Write down the inventory to the lower value.

<p>most recently</p> Signup and view all the answers

<p>FIFO = Higher net income in rising prices LIFO = Lower net income due to more expensive inventory Average Cost = Uses the average cost of all inventory items Specific Identification = Highly accurate for expensive items</p> Signup and view all the answers

<p>It can mislead financial statements (B)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>To update account balances for proper revenue and expense recognition</p> Signup and view all the answers

<p>matching</p> Signup and view all the answers

<p>Cash Basis Accounting = Recognizes revenue when cash is received Accrual Basis Accounting = Recognizes revenue when it is earned Revenue Recognition Principle = Dictates when to record revenue Expense Recognition Principle = Requires expenses to match revenues</p> Signup and view all the answers

<p>Accounts Receivable (D)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>It is adjusted by debiting unearned revenue and crediting revenue.</p> Signup and view all the answers

<p>To reset temporary accounts to zero (D)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>(Cost - Salvage Value) / Useful Life</p> Signup and view all the answers

<p>income statement</p> Signup and view all the answers

<p>Perpetual = Updates records continuously Periodic = Updates records at the end of the period Specific Identification = Tracks individual items FIFO = First in, first out method</p> Signup and view all the answers

<p>Net sales minus cost of goods sold (A)</p> Signup and view all the answers

<p>True (A)</p> Signup and view all the answers

<p>Revenue accounts, expense accounts, dividends</p> Signup and view all the answers

<p>Time</p> Signup and view all the answers

<p>Whenever purchases and sales occur (B)</p> Signup and view all the answers

<p>The single-step income statement totals revenues and expenses without detail, while the multiple-step format breaks them into categories.</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>discounts</p> Signup and view all the answers

<p>FIFO = First items purchased are the first sold LIFO = Last items purchased are the first sold Average Cost = Cost is averaged over purchases Specific Identification = Tracks unique items in inventory</p> Signup and view all the answers

<p>Principal, Interest Rate, Time (C)</p> Signup and view all the answers

<p>Cost of Asset - Accumulated Depreciation (B)</p> Signup and view all the answers

<p>Gross Profit / Net Sales (C)</p> Signup and view all the answers

<p>Beginning Inventory + Purchases - Ending Inventory (B)</p> Signup and view all the answers

<p>The company can meet its short-term liabilities. (D)</p> Signup and view all the answers

<p>Gross Profit Rate (D)</p> Signup and view all the answers

<p>Current Assets - Current Liabilities (B)</p> Signup and view all the answers

<p>Company's liquidity and financial structure (B)</p> Signup and view all the answers

<p>It provides a more accurate financial picture. (C)</p> Signup and view all the answers

<p>When goods or services are delivered. (B)</p> Signup and view all the answers

<p>Expenses are recorded in the same period as the revenues they help generate. (C)</p> Signup and view all the answers

<p>To ensure proper recognition of revenues and expenses in the correct period. (D)</p> Signup and view all the answers

<p>It is recognized as revenue and reduces unearned revenue. (D)</p> Signup and view all the answers

<p>Debit accounts receivable and credit revenue. (C)</p> Signup and view all the answers

<p>By debiting the expense account and crediting the prepaid asset account. (D)</p> Signup and view all the answers

<p>Accrual basis accounting. (A)</p> Signup and view all the answers

<p>Unearned revenue would be overstated. (A)</p> Signup and view all the answers

<p>It provides detailed category breakdowns. (D)</p> Signup and view all the answers

<p>It reduces the book value of the asset. (A)</p> Signup and view all the answers

<p>Allocating an asset's cost over its useful life. (A)</p> Signup and view all the answers

<p>The efficiency of selling products. (A)</p> Signup and view all the answers

<p>To permanently remove the balances of temporary accounts. (D)</p> Signup and view all the answers

<p>It will decrease net income. (A)</p> Signup and view all the answers

<p>With each purchase and sale in real time. (D)</p> Signup and view all the answers

<p>Net Sales - Cost of Goods Sold (COGS). (B)</p> Signup and view all the answers

<p>The buyer pays the freight costs and takes ownership upon shipment. (B)</p> Signup and view all the answers

<p>FIFO. (C)</p> Signup and view all the answers

<p>It does not offer real-time inventory levels. (A)</p> Signup and view all the answers

<p>Benefits for early payment on purchases. (D)</p> Signup and view all the answers

<p>Total Revenues - Total Expenses. (A)</p> Signup and view all the answers

<p>It matches current revenues with older inventory. (C)</p> Signup and view all the answers

<p>It lowers taxable income. (B)</p> Signup and view all the answers

<p>Write down the inventory to the lower value. (C)</p> Signup and view all the answers

<p>Assets = Liabilities + Stockholders' Equity (D)</p> Signup and view all the answers

<p>Current Ratio (C)</p> Signup and view all the answers

<p>Gross Profit - Operating Expenses (D)</p> Signup and view all the answers

<p>Net Income / Net Sales (C)</p> Signup and view all the answers

<p>Financial risk associated with debt financing (A)</p> Signup and view all the answers

<p>(Net Income - Preferred Dividends) / Weighted Average Shares Outstanding (B)</p> Signup and view all the answers

<p>To assess how quickly inventory is sold and replaced (C)</p> Signup and view all the answers

<p>It matches specific costs with specific items sold. (D)</p> Signup and view all the answers

<p>Gross profit decreases. (A)</p> Signup and view all the answers

<p>It measures short-term liquidity without relying on inventory. (B)</p> Signup and view all the answers

<p>It decreases the value of ending inventory. (D)</p> Signup and view all the answers

Recognizes revenue and expenses when cash is received or paid.

Recognizes revenue when earned and expenses when incurred, not necessarily when cash is exchanged.

Revenue is recognized when earned—when goods or services are delivered, not when cash is received.

Expenses are recognized in the same period as the revenues generated. It is also known as matching principle

Entries made at the end of an accounting period to update account balances not yet recorded.

Expenses paid in advance, recorded as an asset and adjusted to an expense at a later date.

Cash received in advance for future goods or services; is initially recorded as a liability and later adjusted to revenue.

Revenue earned but not yet received or recorded.

First-In, First-Out; older inventory is sold first; used for various items.

Last-In, First-Out; newer inventory is sold first.

Uses the average cost of all items to calculate cost of goods sold and ending inventory.

Inventory is not overstated if market value is less than cost.

Precisely identifies cost of specific items; often expensive, identifiable items.

Expenses recorded when incurred, even if not yet paid.

Entries that reset temporary accounts (revenue, expense, dividends) to zero for the next period.

Allocating the cost of an asset over its useful life.

Cost of borrowing money, calculated using principal, rate, and time.

A simple income statement format; lists revenues & expenses, then calculates net income.

Net sales minus the cost of goods sold (COGS).

Continuously updates inventory records with each purchase/sale.

Updates inventory records at the end of the accounting period.

Direct cost of producing goods sold by a company.

Income statement showing detailed categories of revenues and expenses.

Final figure on the income statement; total revenues minus total expenses.

Non-operating income/expenses resulting from selling assets.

Costs of shipping goods; can be paid by buyer or seller.

Inventory costing method that tracks each item's precise cost.

First-In, First-Out inventory costing method.

Records revenue and expenses when cash is received or paid, not when earned/incurred.

Records revenue when earned and expenses when incurred, regardless of cash flow.

Revenue recognized when earned, not when cash is received.

Expenses recognized in the same period as related revenues.

Updates account balances at period-end to ensure accrual accounting.

Expenses paid in advance, recorded as assets, then adjusted to expenses.

Cash received in advance for future services--a liability.

Revenue earned, but not yet received or recorded.

Interest expense = Principal × Interest Rate × Time

Cost of Asset - Accumulated Depreciation

Beginning Inventory + Purchases - Ending Inventory

Gross Profit / Net Sales

Current Assets - Current Liabilities

Net sales minus the cost of goods sold.

Direct costs of producing goods sold by a company.

Current Assets - Current Liabilities

Expenses recognized when incurred, even if not yet paid.

Reset temporary accounts (revenue, expense, dividend) to zero for the next period.

Allocating the cost of an asset over its useful life.

Cost of borrowing money, calculated using principal, rate, and time.

A simpler income statement; lists revenues & expenses and then calculates net income.

Net sales minus the cost of goods sold (COGS).

Continuously updates inventory records with each purchase/sale.

Updates inventory records at the end of the accounting period.

Calculated by dividing gross profit by net sales to assess efficiency.

Direct cost of producing goods sold by a company.

Detailed income statement, showing categories like gross profit, operating income, and non-operating income.

Final figure on income statement; total revenues minus total expenses.

Non-operating income/expenses from selling assets.

Costs of shipping goods; potentially paid by either buyer or seller.

Inventory costing method tracking precise cost of each item.

First-In, First-Out; older inventory is sold first.

Last-In, First-Out; newer inventory sold first.

Uses the average cost of all inventory items to calculate cost of goods sold and ending inventory.

Inventory is written down to the lower of its cost or market value.

Tracks the exact cost of each item sold.

Assets = Liabilities + Stockholders' Equity

Total revenues minus total expenses.

Net sales minus cost of goods sold.

Gross profit minus operating expenses.

Cost of Goods Sold (COGS) divided by Average Inventory

Current Assets divided by Current Liabilities

Net Income divided by Average Total Assets

Direct costs of producing goods sold by a company.