Definition of Inventory receipt
The arrival of an inventory delivery from a supplier or other
inventory returned from a customer for any reason. This receipt
is handled differently from a standard inventory receipt, typically into an inspection
area, from which it may be returned to stock, reworked, or scrapped.
A method for dividing inventory into classifications,
either by transaction volume or cost. Typically, category A includes that 20% of
inventory involving 60% of all costs or transactions, while category B includes
the next 20% of inventory involving 20% of all costs or transactions, and category
C includes the remaining 60% of inventory involving 20% of all costs or
Certificates issued by a U.S. depositary bank, representing foreign
shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may
represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's
are "sponsored," the corporation provides financial information and other assistance to the bank and may
subsidize the administration of the ADRs. "Unsponsored" ADRs do not receive such assistance. ADRs carry
the same currency, political and economic risks as the underlying foreign share; the prices of the two, adjusted for the SDR/ordinary ratio, are kept essentially identical by arbitrage. American depositary shares(ADSs) are
a similar form of certification.
The inventory cost-flow assumption that assigns the average
cost of beginning inventory and inventory purchases during a period to cost of goods sold and
The beginning inventory for a period, plus the amount at the end of
the period, divided by two. It is most commonly used in situations in which just
using the period-end inventory yields highly variable results, due to constant and
large changes in the inventory level.
A secured loan that gives the lender a lien against all the borrower's inventories.
The amount of money invested in inventory, as per a company’s
accounting records. It is comprised of the beginning inventory balance, plus the
cost of any receipts, less the cost of sold or scrapped inventory. It may be significantly
different from the actual on-hand inventory, if the two are not periodically
A journal used to record the transactions that result in a debit to cash.
The average number of days' worth of sales that is held in inventory.
inventory intended for shipment to customers, usually
comprised of finished goods and service items.
a measurement of the value of inventory for the time that inventory is held
The dollar value or unit total of goods on hand at the end of an
Goods that have been completed by the manufacturing
process, or purchased in a complete form, but which have not yet been sold to
Completed inventory items ready for shipment to
The inventory cost-flow assumption that
assigns the earliest inventory acquisition costs to cost of goods sold. The most recent inventory
acquisition costs are assumed to remain in ending inventory.
Excess inventory kept on hand to provide a buffer against
Excess inventories kept on hand as a buffer against contingent
inventory currently situated between its shipment and delivery
Parts with no recent prior or forecasted usage.
International Depository Receipt (IDR)
A receipt issued by a bank as evidence of ownership of one or more
shares of the underlying stock of a foreign corporation that the bank holds in trust. The advantage of the IDR
structure is that the corporation does not have to comply with all the regulatory issuing requirements of the
foreign country where the stock is to be traded. The U.S. version of the IDR is the American Depository
For companies: Raw materials, items available for sale or in the process of being made ready for
sale. They can be individually valued by several different means, including cost or current market value, and
collectively by FIFO, LIFO or other techniques. The lower value of alternatives is usually used to preclude
overstating earnings and assets.
For security firms: securities bought and held by a broker or dealer for resale.
Goods bought or manufactured for resale but as yet unsold, comprising raw materials, work-in-progress and finished goods.
The cost of the goods that a company has available for resale.
Goods that a firm stores in anticipation of its later sale or use as an input.
The cost of unsold goods that are held for sale in the ordinary course of business or
that will be used or consumed in the production of goods to be sold.
Those items included categorized as either raw materials, work-inprocess,
or finished goods, and involved in either the creation of products or service
supplies for customers.
A transaction used to adjust the book balance of an inventory
record to the amount actually on hand.
The number of days it would take to sell the ending balance in inventory at the
average rate of cost of goods sold per day. Calculated by dividing inventory by cost of goods sold
per day, which is cost of goods sold divided by 365.
The redirection of parts or finished goods away from their intended
A transaction used to record the reduction in inventory from a location,
because of its release for processing or transfer to another location.
A secured short-term loan to purchase inventory. The three basic forms are a blanket
inventory lien, a trust receipt, and field warehousing financing.
A term describing the loss of products from inventory
due to shoplifting by customers, employee theft, damaged and
spoiled products that are thrown away, and errors in recording the purchase
and sale of products. A business should make a physical count and
inspection of its inventory to determine this loss.
A shortfall between inventory based on actual physical counts and inventory
based on book records. This shortfall may be due to such factors as theft, breakage, loss, or
The ratio of annual sales to average inventory which measures the speed that inventory
is produced and sold. Low turnover is an unhealthy sign, indicating excess stocks and/or poor sales.
The number of times a company sold out and replaced its average stock of goods in a year. The formula is:
(Cost of goods sold) / (Average inventory (beginning inventory + ending)/2 )
The number of times per year that an entire inventory or a
subset thereof is used.
Ratio of annual sales to inventory, which shows how many times the inventory of a firm is sold and replaced during an accounting period.
inventory turnover ratio
The cost-of-goods-sold expense for a given
period (usually one year) divided by the cost of inventories. The ratio
depends on how long products are held in stock on average before they
are sold. Managers should closely monitor this ratio.
Inventory Turnover Ratio
Provides a measure of how often a company's inventory is sold or
"turned over" during a period. It is calculated by dividing the sales
figure for the period by the book value of the inventory at the end of
Refers to making an entry, usually at the close of a
period, to decrease the cost value of the inventories asset account in
order to recognize the lost value of products that cannot be sold at their
normal markups or will be sold below cost. A business compares the
recorded cost of products held in inventory against the sales value of the
products. Based on the lower-of-cost-or-market rule, an entry is made to
record the inventory write-down as an expense.
Just-in-time inventory systems
Systems that schedule materials/inventory to arrive exactly as they are
needed in the production process.
Last-In, First-Out (LIFO) Inventory Method
The inventory cost-flow assumption that assigns the most recent inventory acquisition costs to cost of goods sold. The earliest inventory
acquisition costs are assumed to remain in ending inventory.
An inventory item’s budgeted maximum inventory level,
comprising its preset safety stock level and planned lot size.
The value of the products that a retailing or wholesaling company intends to resell for a profit.
In a manufacturing business, inventories would include finished goods, goods in process, raw materials, and parts and components that will go into the end product.
An inventory item’s budgeted minimum inventory level.
Moving average inventory method
An inventory costing methodology that calls for the re-calculation of the average cost of all parts in stock after every purchase.
Therefore, the moving average is the cost of all units subsequent to the latest purchase,
divided by their total cost.
The current inventory balance, less allocated or reserved items.
Parts not used in any current end product.
A physical inventory count taken on a repetitive basis.
Periodic inventory system
An inventory system in which the balance in the inventory account is adjusted for the units sold only at the end of the period.
A system that continually tracks all additions to and deletions
from inventory, resulting in more accurate inventory records and a running total for
the cost of goods sold in each period.
A manual or automated inventory tracking system in which
a new inventory balance is computed continuously whenever new transactions
Perpetual inventory system
An inventory system in which the balance in the inventory account is adjusted for the units sold each time a sale is made.
A manual count of the on-hand inventory.
Raw materials inventory
The total cost of all component parts currently in stock that
have not yet been used in work-in-process or finished goods production.
The process of comparing book to actual inventory balances,
and adjusting for the difference in the book records.
Very high inventory levels built up in anticipation of large
Parts for which the on-hand quantity exceeds forecasted
receipt for goods that are to be held in trust for the lender.
A stock receipt for which no order was placed or for which an
excess quantity was received.
a streamlined system of inventory
acquisition and management by which a supplier can
be empowered to monitor EDI inventory levels and provide
its customer company a proposed e-order and subsequent
shipment after electronic acceptance
The direct management and ownership of selected
on-site inventory by suppliers.
Evidence that a firm owns goods stored in a warehouse.
inventory that has been partially converted through the
production process, but for which additional work must be completed before it can
be recorded as finished goods inventory.
Cash conversion cycle
The length of time between a firm's purchase of inventory and the receipt of cash
from accounts receivable.
Cash Flow Provided by Operating Activities
With some exceptions, the cash effects of transactions
that enter into the determination of net income, such as cash receipts from sales of goods
and services and cash payments to suppliers and employees for acquisitions of inventory and
Low-cost, high-usage inventory items stored near the shop floor,
which the production staff can use at will without a requisition and which are
expensed at the time of receipt, rather than being accounted for through a formal
internal accounting controls
Refers to forms used and procedures
established by a business—beyond what would be required for the
record-keeping function of accounting—that are designed to prevent
errors and fraud. Two examples of internal controls are (1) requiring a
second signature by someone higher in the organization to approve a
transaction in excess of a certain dollar amount and (2) giving customers
printed receipts as proof of sale. Other examples of internal
control procedures are restricting entry and exit routes of employees,
requiring all employees to take their vacations and assigning another
person to do their jobs while they are away, surveillance cameras, surprise
counts of cash and inventory, and rotation of duties. Internal controls
should be cost-effective; the cost of a control should be less than
the potential loss that is prevented. The guiding principle for designing
internal accounting controls is to deter and detect errors and dishonesty.
The best internal controls in the world cannot prevent most fraud
by high-level managers who take advantage of their positions of trust
Projected available balance
The future planned balance of an inventory item,
based on the current balance and adjusted for planned receipts and usage.
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