BUS103 Study Guide

Unit 6: Accounting for Inventory – Measuring and Reporting

6a. Identify and analyze accounting transactions of a merchandising company

Unlike service companies, which do not maintain inventory, merchandising companies will report the cost of goods sold on their income statement and report inventory balances on their balance sheet.

Inventory transactions often include discounts. Know how to calculate and record sales and purchase discounts associated with the sale and purchase of inventory.

Read about sales and purchase discounts in Sales revenues on pages 304-312.


6b. Define and solve for specific business situations involving various inventory methods

The four main methods of tracking inventory costs are FIFO (first-in, first-out), LIFO (last-in, first-out), weighted average, and specific identification. Inventory costs include the purchase price of inventory items as well as the costs associated with getting the items prepared to sell.

What are some of the additional costs that are added to the cost of inventory?

Read about inventory costs in Determining Inventory Cost on pages 362-386.


Unit 6 Vocabulary

Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.

  • Adjunct account
  • Cash discount
  • Consigned goods
  • Cost of goods available for sale
  • Cost of goods sold
  • Delivery expense
  • FOB destination
  • FOB shipping point
  • Gross margin
  • Merchandise in transit
  • Net cost of purchases
  • Net sales
  • Periodic inventory procedure
  • Perpetual inventory procedure
  • Sales allowance
  • Sales return
  • Trade discount
  • Transportation-In account
  • Wholesalers