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Financial Statement Effects of Inventory Costing Methods definitions Flashcards

Financial Statement Effects of Inventory Costing Methods definitions
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  • FIFO
    Inventory costing method where oldest units are assigned to cost of goods sold, often resulting in higher ending inventory during rising prices.
  • LIFO
    Inventory costing method where most recent units are assigned to cost of goods sold, typically leading to lower ending inventory in rising price periods.
  • Average Cost
    Inventory method that allocates cost based on the weighted average of all units available, producing results between FIFO and LIFO.
  • Cost of Goods Sold
    Expense representing the cost assigned to inventory items sold during a period, directly affected by the chosen inventory costing method.
  • Gross Profit
    Difference between sales revenue and cost of goods sold, reflecting profitability before operating expenses.
  • Net Income
    Final profit figure after all expenses, including cost of goods sold and operating costs, have been deducted from total revenue.
  • Ending Inventory
    Value of unsold inventory at the end of an accounting period, influenced by the inventory costing method and price trends.
  • Rising Price Environment
    Market condition where inventory purchase costs increase over time, impacting the financial statement effects of costing methods.
  • Falling Price Environment
    Market scenario where inventory purchase costs decrease over time, reversing the typical effects seen in rising price periods.
  • Cost Flow Assumption
    Accounting approach determining the order in which inventory costs are assigned to cost of goods sold and ending inventory.
  • LIFO Reserve
    Disclosure showing the difference in inventory valuation between LIFO and FIFO, enhancing comparability across companies.
  • Financial Statements
    Formal records summarizing a company's financial activities, including the effects of inventory costing choices.
  • Comparability
    Quality enabling users to identify similarities and differences between companies, often improved by LIFO reserve disclosures.
  • Inventory Valuation
    Process of assigning monetary value to inventory, directly influenced by the selected costing method.