- conservatism
- concept that if there is uncertainty in a potential financial estimate, a company should err on the side of caution and report the most conservative amount
- consignment
- arrangement whereby goods are available to sell by one party, but owned by another party, without transfer of ownership
- consistency principle
- accounting methods applied in a like manner, across multiple periods, allow for contrast and comparison between periods
- first-in, first-out method (FIFO)
- inventory cost allocation method that assumes the earliest acquired inventory items are the first to be sold
- FOB destination point
- transportation terms whereby the seller transfers ownership and financial responsibility at the time of delivery
- FOB shipping point
- transportation terms whereby the seller transfers ownership and financial responsibility at the time of shipment
- goods available for sale
- total of all inventory (beginning inventory plus purchased inventory); will either be sold this period or held in period-end inventory
- gross profit
- net profit from sale of goods; sales revenue minus cost of goods sold
- gross profit method
- inventory estimation tool that uses a company’s usual gross profit percentage, related to total sales revenue, to estimate the cost of the ending inventory
- inventory turnover ratio
- computed by dividing cost of goods sold by average inventory; measures number of times inventory rotated through the sales cycle for the period
- last-in, first-out method (LIFO)
- inventory cost allocation method that assumes the latest acquired inventory items are the first to sell
- lower-of-cost-or-market (LCM)
- conservatism-based concept that mandates inventory be reported at the lower of the value of inventory reflected in the general ledger or replacement value
- merchandise inventory
- goods held for sale at a given point in the period
- number of days’ sales in inventory ratio
- computed by dividing average merchandise inventory by average daily cost of goods sold; measures number of days it would take to clear remaining inventory
- periodic inventory system
- system that is updated at the end of the period, to match the physical count of goods on hand
- perpetual inventory system
- system that automatically updates and records the inventory account every time a sale or purchase of inventory occurs
- purchases
- new acquisitions of merchandise inventory during the period
- retail inventory method
- inventory estimation tool that uses a company’s usual gross profit percentage, related to total sales revenue, to estimate the retail value of the ending inventory, which can then be reduced to an estimated cost figure
- specific identification method
- inventory cost allocation method that traces actual cost of each specific item, whether sold or held in inventory; usually used for customized or differentiated products
- weighted-average method
- inventory cost allocation method that calculates the average value inventory items by weighting each purchase lot’s goods available for sale, before dividing by the total number of units of that item