Accounting Chapter 20

Merchandise inventory on hand is typically the largest asset of a merchandising business.

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Many businesses fail because too much or too little merchandise inventory is kept on hand.

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When a business frequently orders small quantities of an item, the price paid is often more per unit than when merchandise is ordered in large quantities.

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Merchandise inventory determined by keeping a continuous record of increases, decreases, and balance on hand is a physical inventory.

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A periodic inventory is usually taken each week.

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Businesses frequently establish their fiscal period to end when inventory is at a minimum because it takes less time to count a smaller inventory.

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Using the price of merchandise purchased last to calculate the cost of merchandise sold first is the LIFO method.

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The ending inventory and cost of merchandise sold are calculated using the same unit price under the weighted-average inventory method.

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Estimating inventory by using the previous years' percentage of gross profit on operations is the gross profit method.

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The cost of merchandise sold can be calculated by subtracting the cost of merchandise available for sale from the cost of ending inventory.

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