Glossary

conservatismA general principle of accounting measurement; when in doubt, understate assets and income and overstate liabilities
consignmentTo place inventory in the custody of another party without requiring them to purchase it, as a sales agent
cost flow assumptionAn assumption about how costs are assigned to inventory in the accounting records
first-in, first-out
FIFO; An inventory cost flow assumption based on the notion that the earliest costs are to be assigned to units sold
goods in transitGoods in the process of being transported to the buyer; ownership is based on freight terms
gross profit methodA technique that purports to estimate inventory and cost of goods sold by applying historic percentage relationships to observable sales information
last-in, first-out methodLIFO; An inventory cost flow assumption based on the notion that the most recent costs are to be assigned to units sold
lower of cost or net realizable valueTo report inventory at the lower of its cost or net realizable value
moving-average methodUnder the perpetual inventory system; to recompute running average cost with each purchase transaction
net realizable value (NRV)(inventory) Estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal, and transportation
physical inventoryThe process of counting inventory actually on hand
retail inventory methodAn inventory costing technique used by retailers that extrapolates inventory values by applying cost-to-retail percentages to known sales and purchase transactions
specific identification methodInventory costing method where the actual cost of each unit of merchandise is tracked and used for accounting purposes
weighted-average inventory methodUnder the periodic inventory system; inventory cost is based on the average cost of units purchased giving consideration to the quantities purchased at different prices

Glossary – Chapter 8

Illustrative Entries

Account Types

Time Value of Money

IMPORTANT LINKS

GLOSSARY SEARCH