Ch.

7 Outline

 Merchandise Inventory – inventory account for goods purchased for resale

 Raw Materials Inventory – includes tangible goods required for direct use in the production
process
 Work-in-process Inventory – includes products that have been started in the manufacturing
process but are not yet complete
 Finished goods Inventory – includes completed manufactured products awaiting sale
 Perpetual Inventory System – keeps continuous record of physical quantities in inventory
 Periodic Inventory System – does not maintain continuous record; ending inventory assessed
periodically
 FOB Shipping Point – control and legal title of goods transferred at shipping point
 FOB destination – control and legal title of goods not transferred until destination is reached
 Consignment – cosigner retains ownership and cosignee acts as sales agent of cosigner
 Product Financing Arrangements – company sells inventory to financer and buys it back over
specified periods
 Bill and Hold Sale – buyer requests seller to hold purchased goods until a later date
 Purchase Obligation – committing to purchase in advance of when purchases actually occur
 Product Cost – costs involved directly or indirectly in making goods for sale
 Period Cost – costs not associated with making product
 Purchase Discounts – discounts to buyers for prompt payment
 Gross Price Method – co. records sale at gross price then records discount
 Net Price Method – Records net price; only records discount if not taken
 Cost Flow Assumption – methods of tracking CGS
 Specific Identification – co. identifies each unit sold and each unit remaining in inventory and
actual costs of particular units in CGS and ending inventory
 LIFO Conformity Rule – co. can only use LIFO for tax if it is used in financial statements
 LIFO Liquidation Profit – increased profit when liquidating and using LIFO
 Cost Index – internally generated index that relates current-year cost of inventory to a base-year
cost of inventory
 Double-Extension Method – sample of ending inventory priced at current-year costs and at
base-year costs; divide ending inv. current year by ending inv. Base year
 Link-chain method – co. reports portion at current year and previous year