AnswerforChapter7Receivables..doc

CHAPTER 7 Receivables KEY TERM average cost method The method of inventory costing that is based upon the assumption that costs should be charged against revenue by using the weighted average unit cost of the items sold. first-in, first-out (FIFO) method The method of inventory costing based on the assumption that the costs of merchandise sold should be charged against revenue in the order in which the costs were incurred. gross profit method A method of estimating inventory cost that is based on the relationship of gross profit to sales. inventory turnover The relationship between the volume of goods sold and inventory, computed by dividing the cost of goods sold by the average inventory. last-in, first-out (LIFO) method A method of inventory costing based on the assumption that the most recent merchandise inventory costs should be charged against revenue. lower-of-cost-or-market (LCM) method A method of valuing inventory that reports the inventory at the lower of its cost or current market value (replacement cost). net realizable value The estimated selling price of an item of inventory less any direct costs of disposal, such as sales commissions. number of days’ sales in inventory The relationship between the volume of sales and inventory, computed by dividing the inventory at the end of the year by the average daily cost of goods sold. physical inventory A detailed listing of merchandise on hand. retail inventory method A method of estimating inventory cost that is based on the relationship of gross profit to sales. KEY POINT Journalize the entries for the allowance method of accounting for uncollectibles, and estimate uncollectible receivables based on sales and on an analysis of receivables.A year-end adjusting entry provides for (1) the reduction of the value of the receivables to the amount of cash expected to be realized from them in the future and (2) the allocation to the current period of the expected expens