Perpetual Inventory - FIFO, LIFO, and Average Cost definitions Flashcards
Perpetual Inventory - FIFO, LIFO, and Average Cost definitions
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Perpetual Inventory System A method where inventory records are updated continuously after each purchase or sale, reflecting real-time inventory levels. FIFO A cost flow assumption where the oldest inventory units are considered sold first, impacting cost of goods sold with earlier purchase prices. LIFO A cost flow assumption where the newest inventory units are considered sold first, causing cost of goods sold to reflect recent purchase prices. Average Cost Method A technique that allocates cost of goods sold based on the average cost of all units available, recalculated after each transaction. Moving Average A recalculated average cost per unit in a perpetual system, updated after every inventory purchase or sale. Cost Flow Assumption An accounting approach that determines which inventory costs are assigned to cost of goods sold and ending inventory. Cost of Goods Sold The total cost assigned to inventory items that have been sold during a period, based on the chosen cost flow method. Physical Flow of Goods The actual movement of inventory items, which may differ from the accounting method used to assign costs. Identical Inventory Items Units of inventory that are indistinguishable from each other, such as cans of soda, requiring cost flow assumptions. Cost per Unit The result of dividing total inventory cost by the number of units available, used in the average cost method. Inventory Record A continuously updated log that tracks quantities and costs of inventory on hand in a perpetual system. Purchase Price The amount paid to acquire inventory units, which may vary between purchases and affect cost calculations. Accounting Process The systematic approach to recording, classifying, and summarizing inventory transactions using cost flow methods.
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