Intermediate Accounting Chapter 9

Front 1

average days to sell inventory

Back 1

Measure represents the average number of days' sales for which a company has inventory on hand.

Front 2

conventional retail inventory method

Back 2

Approach that uses only assumption A (a cost ratio using markups but not markdowns). It approximates the lower-of-average-cost-or-market.

Front 3

cost-of-goods-sold method

Back 3

debits cost of goods sold for the write-down of the inventory to NRV

Front 4

cost-to-retail ratio

Back 4

The formula for this computation is to dive the total goods available for sale at cost by the total goods available at retail price

Front 5

designated market value

Back 5

amount that a company compares to cost. It is always the middle value of three amounts: replacement cost, net realizable value, and net realizable value less a normal profit margin

Front 6

dollar-value LIFO retail method

Back 6

If the price level does change, the company must eliminate the price change so as to measure the real increase the real increase in inventory, not the dollar increase

Front 7

gross profit method

Back 7

Auditors widely use this method in situations where they need only an estimate of the company's inventory.

Front 8

gross profit percentage

Back 8

Stated as a percentage of selling price

Front 9

hedging

Back 9

the purchaser in the purchase commitment simultaneously enters into a contract in which it agrees to sell in the future the same quantity of the same goods at a fixed price

Front 10

inventory turnover

Back 10

measures the number of times on average a company sells the inventory during the period

Front 11

LIFO retail method

Back 11

Companies consider both markups and markdowns in obtaining the proper cost-to-retail percentage

Front 12

loss method

Back 12

debits a loss account for the write-down of the inventory to NRV

Front 13

lower limit (floor)

Back 13

net realizable value less a normal profit margin

Front 14

lower-of-cost-or-market

Back 14

Rather then comparing cost to net realizable value, under the alternative approach, companies compare a "designated market value" of the inventory to cost.

Front 15

lower-of-cost-or-net realizable value

Back 15

The way companies report their inventories

Front 16

lump-sum purchase

Back 16

When a company buys a group of varying units

Front 17

markdown

Back 17

Decreases in the original sales prices

Front 18

markdown cancellations

Back 18

markdowns are later offset by increases in the price of goods that the retailer had marked down

Front 19

markup

Back 19

additional markup of the original retail price

Front 20

markup cancellations

Back 20

decreases in prices of merchandise that the retailer had marked up above the original retail price

Front 21

net realizable value

Back 21

refers to the net amount that a company expets to realize from the sale of inventory

Front 22

net realizable value less a normal profit margin

Back 22

normal profit margin subtracted from net realizable value

Front 23

purchase commitments

Back 23

agreements to buy inventory weeks, months, or even years in advance.

Front 24

retail inventory method

Back 24

Compile the inventories at retail prices

Front 25

upper limit

Back 25

net realizable value of inventory