Wiley GAAP 2008

Definitions of Terms

Base stock. Based on the theory that a minimal level of inventory is a permanent investment, the amount maintained indefinitely on the balance sheet at its historical cost.

Ceiling. In lower of cost or market (LCM) computations, market (replacement cost, as defined below) cannot be higher than the ceiling (net realizable value, as defined below).

Consignments. A marketing method in which the consignor ships goods to the consignee, who acts as an agent for the consignor in selling the goods. The inventory remains the property of the consignor until sold by the consignee.

Cost. The accumulated amount of expenditures and charges incurred directly or indirectly to acquire and/or produce items of inventory and to move them to the location from which they will be sold or held for sale.

Direct (variable) costing. This method includes only variable manufacturing costs in the cost of ending finished goods inventory. This method is not acceptable for financial reporting or income tax purposes.

Dollar‐value LIFO. A variation of conventional LIFO in which layers of inventory are priced in dollars adjusted by price indices instead of being priced at unit prices.

Double‐extension. A method used to compute the LIFO conversion price index. The index indicates the relationship between the base‐year and current prices in terms of a percentage.

Finished goods. A manufacturer's completed but unsold products.

First‐in, first‐out (FIFO). A cost flow assumption; the first goods purchased ...