Category: Financial Accounting Review

1. Classification of inventories: Raw materials, work-in-process, finished goods 2. Goods in transit: Free on board (FOB) shipping point, FOB destination, seller’s inventory, buyer’s inventory

Goods in Transit Entity A sold $25,000 merchandise to Entity B with the terms of FOB destination on December 22, 20×1. Merchandise arrived at destination

Inventory Recording Systems Periodic inventory system Perpetual inventory system © AccountingInfo.com

Cost Flow Assumptions First-in, First-out (FIFO) method Last-in, First-out (LIFO) method Weighted average method First-in, First-out (FIFO) method Old purchases are assumed to be sold

Lower of Cost or Market (LCM) 1. At the end of each period, inventory is measured at the lower of cost or market. 2. Market

Inventory Turnover Ratios 1. Inventory turnover ratio = Cost of goods sold / Average inventory 2. Days in inventory = 365 days / Inventory turnover