Chapter 9 Vocab Accounting

Chapter 9 Vocab

average days to sell inventory - A measure that represents the average number of days' sales for which inventory is on hand. A variant of the inventory turnover ratio, it is computed by dividing the inventory turnover ratio by the number of days in the year (365 or sometimes for simplicity, 360). (p. 516).

conventional retail inventory method - A method of valuing ending inventory that uses only a cost ratio using markups but not markdowns, thereby approximating the lower-of-average-cost-or-market. (p. 510.)

cost-of-goods-sold method - A method of valuing inventory in which cost of goods sold is debited for the write-down of inventory to market. 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 loss. (p. 498).

cost-to-retail ratio - The total goods available for sale at cost divided by the total goods available for sale at retail price. (p. 509).

designated market value - The amount that a company compares to cost, when using the lower-of-cost-or-market (LCM) rule. The designated market value is the middle value of three amounts: replacement cost, net realizable value, and net realizable value less a normal profit margin. (p. 496).

gross profit method - Method of determining inventory amount, often used when it is impossible or impractical to take a physical inventory. In this method, companies compute the gross profit percentage on selling price, multiply that percentage times net sales to determine gross profit, subtract gross profit from net sales to find cost of goods sold, and subtract cost of goods sold from total goods available for sale to determine ending inventory. Also called the gross margin method. (p. 505).

gross profit percentage - Measure used in the gross profit method; it represents the rate (percentage) of profit a company expects from some convenient measure, usually sales. This rate is determined by company policy and prior-period...