Accounting & auditingLesson 4 of 4 in the course Depreciation and inventory

Cost of Goods Sold: Inventory Costing, Cost Flow, and Profit

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

Cost of goods sold (COGS) connects the cost of merchandise with the period in which the business earns revenue from selling it. Understanding this connection helps explain why unsold goods remain assets rather than being expensed immediately.

Cost of goods sold, also called cost of sales or cost of products sold, is the carrying value of goods sold during a particular period. It includes the costs assigned to those goods, such as purchase costs or production costs.

All flashcards

What is specific identification in inventory costing?
It assigns each sold item its actual recorded cost, based on identifying that particular item.
How does the average cost method assign inventory costs?
It applies an average cost per unit to both goods sold and goods remaining.
What is an inventory reserve?
An allowance that reduces the reported value of inventory, commonly for a decline in value.
What is indirect labor in manufacturing?
Labor by factory employees who support production but do not work directly on the product.
What does throughput accounting emphasize?
It treats inventory as investment and focuses on totally variable costs.

Quiz questions

  1. Under the FIFO cost-flow assumption, which costs are assigned to cost of goods sold first?Answer: The costs of the earliest goods acquired or produced.
  2. Which cost is generally included in the acquisition cost of resale goods?Answer: Freight paid to obtain the goods.
  3. What does activity-based costing use to assign production overhead?Answer: Activities or factors that cause costs to be incurred.
  4. Why is recoverable value added tax generally excluded from inventory cost?Answer: The business can generally reclaim it or claim an input credit.
  5. How is gross profit calculated?Answer: Net sales minus cost of goods sold.

Based on the Wikipedia article Cost of goods sold, licensed CC BY-SA 4.0. Adapted into a summary, flashcards and quizzes.

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