Term
| Net Realizable Value (NRV) |
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Definition
| the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal (often referred to as net selling price) |
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Term
| General lower-of-cost-or-market rule |
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Definition
- a company values inventory at the lover of cost or market, with market limited to an amount that is not more than net realizable value or less than net realizable value less a normal profit margin
- upper (ceiling) is the net realizable value of inventory
- lower (floor) is the net realizable value less a normal profit margin
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Term
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Definition
| is the amount that a company compares to cost: always the middle value of the three amounts |
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Term
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Definition
| substitutes the (lower) market value figure for cost when valuing the inventory. As a result, the company does not report a loss in the income statement because the cost of goods sold already includes the amount of the loss |
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Term
| indirect or allowance method |
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Definition
| does not change the cost amount. Establishes a separate contra asset account and a loss account to record the write-off |
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Term
| under limited circumstances, support exists for recording inventory at net realizable value, even if that amount is above cost |
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Definition
under the following conditions:
- when there is a controlled market with a quoted price applicable to all quantities
- when no significant costs of disposal are involved
- sometimes it is too difficult to obtain the cost figures
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Term
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Definition
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 (or similar) goods at a fixed price |
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Term
| Gross profit method of estimating inventory |
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Definition
relies on three assumptions:
- the beginning inventory plus purchases equal total goods to be accounted for
- goods not sold must be on hand
- the Sales, reduced to cost, deducted from the sum of the opening inventory plus purchases, equal ending inventory
disadvantages: it provides an estimate; uses past percentages in determining markup; must be careful in applying a blanket gross profit rate
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Term
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Definition
Requires that the retailer keep a record of (1) the total cost and retail value of goods purchases, (2) the total cost and retail value of the goods available for sale, and (3) the sales for the period |
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Term
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Definition
- means an additional markup of the original retail price
- markup cancellations are decreases in prices of merchandise that the retailer had marked up above the original retail price
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Term
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Definition
- are decreases in the original sales prices
- markdown cancellations occur when the markdowns are later offset by increases in the prices of goods that the retailer had marked down
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Term
| Special items relating to retail method |
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Definition
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Freight costs are part of the purchase cost
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purchase returns are ordinarily considered as a reducition of the price at both cost and retail
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purchase discounts and allowances usually are considered as a reduction of the cost of purchses
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Transfers-in from another department are reported in the same way as purchases from an outside enterprise
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normal shortages should reduce the retail column because these goods are no longer available for sale; show as a deduction similar to sales
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Abnormal shortages are deducted from obth the cost and retail columns and reproted as a special invenotry amount or as a loss
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employee discounts are deducted from the retail column in the same way as sales
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