Average Cost (also known as Weighted-Average Cost) is a method of determining the cost per unit by dividing total costs by the total output. This method includes recalculating the unit value for raw materials or finished goods after each new consignment.
Average costing, also known as weighted average costing, is a method of cost accounting that assigns an average cost to each unit of production when items have a high degree of similarity. It is useful for inventory management and financial reporting.
Backflush accounting is a streamlined costing method designed for environments with minimal stock levels. It allocates costs retroactively to simplify accounting operations, especially suitable for Just-In-Time inventory systems.
A bargain basement is a retail location within a main store, typically situated in the basement, where discounted merchandise is sold. Originally, the purpose was to move unsold merchandise, but the term has been adopted by retailers exclusively dealing in discounted goods.
A certain volume of stock, assumed to be constant in that stock levels are not allowed to fall below this level. When the stock is valued, this proportion of the stock is valued at its original cost. This method is not normally acceptable for financial accounting purposes.
A bin card, also known as a store card, is used in inventory management to track the receipts, issues, and balances of individual stock items. This card is attached to each bin or storage location to record inventory movement and maintain an accurate balance.
Book Inventory refers to the stock of books that a business has in hand according to recorded figures. It is an essential component in inventory management, impacting both financial reporting and operational efficiency.
A broken lot refers to an incomplete set of merchandise, often resulting from damage or improper packaging.
Carrying costs, also known as holding costs or cost of carry, refer to the expenses associated with maintaining an inventory or financial position. These include opportunity costs, protective measures, wastage, and funding costs.
Channel stuffing is a practice where a company inflates sales figures by sending more products through distribution channels than retailers can sell, potentially deceiving financial markets if done intentionally.
A clearance sale is a special retail sale often conducted to completely eliminate a particular type or brand of product from inventory, frequently offered at significantly reduced prices.
A clerk is an administrative employee responsible for performing various routine tasks, such as maintaining records, managing inventory, and general office duties. Clerical tasks vary widely depending on the specific role of the clerk.
Closed stock refers to merchandise sold only in complete sets, where individual items from the set cannot be purchased separately, and there is no guarantee that replacements will be available in the future.
Clearance or closeout sales typically involve selling off inventory at reduced prices, often to free up retail space or discontinue specific product lines.
Closing stock refers to the inventory remaining within an organization at the end of an accounting period, including raw materials, work in progress, or finished goods. It plays a crucial role in determining the profitability and financial status of a company.
Commodity codes are numerical identifiers used to categorize goods for inventory, sales, and accounting purposes in an organization. They streamline material and finished goods control systems and ensure effective tracking and management of resources.
A consignee refers to an individual or organization authorized to receive goods sent from a consignor. The consignee acts as the recipient of goods, typically in a shipping context, and may also serve as an agent to sell the goods on behalf of the consignor.
Consignment Stock refers to products owned by one party but held and managed by another party with the right to sell or return the goods. This ownership arrangement requires careful accounting practices to reflect commercial realities accurately in financial statements.
A consignor is any person or organization that sends goods to a consignee or a principal who sells goods on consignment through an agent, usually in a foreign country.
Continuous stocktaking is a system of inventory management designed to regularly verify stock levels by counting and reconciling physical stock with accounting records.
An essential metric in accounting, Cost of Goods Sold (COGS) represents the direct costs associated with the production of goods sold by a company. This value is critical in determining the business's gross profit and provides insights into the efficiency and cost management of production processes.
Data capture refers to the process of inserting information into a computerized system. It enables efficient storage, retrieval, and utilization of data, often in real-time, to facilitate optimized business operations.
Days' Sales in Inventory (DSI) is a crucial efficiency metric that indicates the number of days a company's current inventory will last, based on its average daily cost of sales. It's used to measure how efficiently a company manages its inventory.
Dead stock refers to inventory that remains unsold for an extended period. This unsold inventory can result from factors such as changing consumer preferences, overstocking, or product obsolescence. Businesses often seek to identify and manage dead stock effectively to minimize storage costs and free up capital for more profitable inventory.
The interval between the placement of an order for replenishing stock and the receipt of that ordered item. It is a key metric in supply chain and inventory management, influencing operational efficiency.
A prime document utilized to record purchases of parts and materials that are directly chargeable to specific jobs or processes, bypassing the organization's stores. The document specifies item descriptions, commodity codes, item values, and corresponding accounting or cost codes.
Direct materials are those materials that are directly incorporated into the final product or cost unit of an organization. These raw materials are integral to the manufacturing process and can be easily traced back to the finished product.
Direct Materials Inventory represents raw materials in storage that await transfer to production, subsequently forming part of the work in progress.
Direct materials inventory refers to the raw materials that a company keeps in stock for future use in the production process. These materials are a critical part of cost accounting and inventory management.
A warehouse facility specializing in the collection and shipment of merchandise, ensuring efficient movement and storage of goods within a supply chain.
A distribution strategy is management's plan for moving products to intermediaries and ultimately to final customers. It involves decision-making regarding the channels of distribution, the logistics and transportation of goods, and the mechanisms for inventory management.
Drop-Shipping is an e-commerce model where retailers sell products without storing them in their own inventory. Instead, customer orders are fulfilled directly by the supplier who ships the products directly to the end customer.
A refinement of the Economic Order Quantity (EOQ) model that accounts for circumstances where goods are produced in batches.
An inventory decision model used to calculate the optimum amount to order, balancing the fixed costs of ordering and receiving against the carrying cost of inventory and sales. Utilized in both manufacturing and retail inventory management.
A decision model that determines the optimum order size for purchasing or manufacturing an item in stock, balancing ordering and holding costs.
The Economic Order Quantity (EOQ) is a formula used by businesses to determine the optimal order quantity that minimizes the total inventory costs associated with ordering and holding stock.
End of Month (EOM) refers to a specific point in time that typically marks the conclusion of a financial or accounting period. At the EOM, businesses finalize their accounts by reconciling all transactions, completing tasks like issuing invoices, and addressing outstanding receivables and closing inventory.
Enterprise Resource Planning (ERP) software systems are designed to assist in the management of various business operations, including product planning, parts purchasing, inventory maintenance, supplier interactions, customer service, and order tracking. These systems are typically integrated with a central database.
FIFO, or First In, First Out, is an inventory valuation method where the oldest inventory items are recorded as sold first. This method is commonly used in accounting and finance to manage inventory costs.
FIFO Cost, short for First-In-First-Out Cost, is an inventory valuation method where the costs of the earliest items purchased are the first to be recognized in financial statements. This method is widely used in accounting to manage inventory and calculate the cost of goods sold.
Finished goods are products that have completed the manufacturing process and are ready for distribution to customers.
Finished goods inventory represents the value of products that have completed the manufacturing process and are ready for sale to customers. This inventory is crucial for accurate financial reporting and operational planning.
A budget that outlines in both financial and quantitative terms the planned levels of finished goods at various points during the budget period.
A method of inventory valuation in which cost of goods sold is charged with the cost of raw materials, semi-finished goods, and finished goods purchased 'first.' Under FIFO, the inventory contains the most recently purchased materials, and in times of rapid inflation, FIFO can inflate profits.
Floating Assets, also known as Current Assets, are the assets in a company's possession that is expected to be converted into cash within a year.
Forward buying is a retail practice of purchasing more inventory than immediately needed to take advantage of special discounts or trade allowances, thereby aiming to increase profits.
Forward stock refers to the merchandise carried in the selling areas of a retail store that is not accessible to the patrons, for items that require protection or controlled access, such as perfume, jewelry, and cameras.
A document used by businesses to confirm and record the receipt of goods ordered. The GRN ensures that the items received match the order in terms of quantity, quality, and specification.
A Goods Received Note (GRN) is an important document used in the accounting and inventory management process, signifying the receipt of goods by a business.
Inventory accounting refers to the accounting records and systems used for the ordering, receipt, issuing, and valuation of materials bought by an organization for stock. It includes the recording of entries on bin cards and in the stock ledger as well as the procedures adopted to carry out effective stocktaking.
Inventory control, or stock control, is a control system designed to ensure adequate but not excessive levels of stock are maintained by an organization. It takes into account consumption levels, delivery lead times, reorder levels, and reorder quantities for each commodity.
Inventory shortage, also known as shrinkage, refers to the unexplained difference between the physical count of inventory and the amount recorded in accounting records. This discrepancy can be due to various factors, ranging from normal evaporation of a liquid to theft.
Inventory turnover, also known as stock turnover, is a ratio that measures the frequency with which items of stock are used or sold annually.
Just-In-Time (JIT) techniques are inventory management strategies designed to increase efficiency and reduce waste through the timely knowledge and handling of materials.
An approach to manufacturing designed to match production to demand by only supplying goods to order. This has the effect of reducing stocks of raw material and finished goods, encouraging those production activities that add value to the output, and minimizing levels of scrap and defective units.
Just-In-Time (JIT) inventory control is a methodology designed to improve efficiency by reducing in-process inventory and its associated costs. It involves close coordination with suppliers to align production schedules with sales levels and often integrates computerized systems for optimal inventory management.
A method of inventory valuation in which the most recent items acquired are considered the first to be sold. It affects accounting and taxation outcomes, particularly in periods of rising prices.
Last In, First Out (LIFO) is a method used in inventory management and accounting that prioritizes the most recently added inventory for distribution or recording first.
Lead time refers to the lag time between the placement of an order and its actual receipt. It can be reduced by implementing Just-in-Time Inventory Control (JIT).
A standard unit of measure achieved after considerable experience; highly predictable sequence of actions in production.
The comprehensive plan for scheduling the delivery of required supplies and materials at destinations as needed.
Manufacturing inventory refers to the parts or materials on hand, needed for the manufacturing process. Adjusting manufacturing inventory to current production needs is a critical management responsibility.
The elapsed time between placing a production order and the receipt of the completed production.
A Manufacturing Requisition acts as an internal document within a manufacturing unit, outlining the specific raw materials, parts, and other resources required to produce a particular product, and facilitates inventory management.
Material control is the management term referring to the process of ensuring that the necessary materials for production are available at the required place, time, and quantity while maintaining proper accountability and avoiding overstocking.
Materials handling involves the moving, packaging, and storing of raw materials, in-progress inventory, and finished goods within a business, including shipping, receiving, and processing operations.
Materials oncost represents the additional expenses associated with materials beyond their initial purchase price, including handling, storage, and transportation.
A Materials Returns Note (MRN) is a document used in the inventory and supply chain management process to record the return of materials from production or other departments to the warehouse or storage location.
The maximum stock level represents the highest quantity of inventory planned to be held by a company. Surpassing this limit results in excess stock, which could indicate overstocking and tie up capital and storage resources unnecessarily.
A merchandise allowance is a sum of money provided or allowed for merchandise returned due to poor quality or overstocking.
Merchandise Control involves the systematic process of collecting and evaluating data on all aspects of each retail merchandise category, including sales, costs, shrinkage, profits, and turnover. This process helps retailers maintain accurate inventory and optimize their merchandising strategies.
A fiscal year that aligns with the natural cycle of a given business rather than the calendar year, often ending when inventories and activities are at their lowest level.
Net Realizable Value (NRV) is the net amount that an entity expects to realize from the sale of an asset after deducting any costs involved in its sale or disposal.
An accounting method where the most recently acquired or produced items are used first for financial measurement and inventory management.
The normal operating cycle is the period required to convert cash into raw materials, raw materials into inventory finished goods, finished goods inventory into sales and accounts receivable, and finally, accounts receivable back into cash.
A ratio that measures the average number of days an organization's stock is held before it is sold or used in production.
On order refers to goods or services that have been requested through a purchase order but have not yet been received or paid for.
Open stock refers to retail items available for purchase individually or in a specific pattern, where there is no guarantee they will always be in stock, though they can typically be reordered if not discontinued.
Open-to-buy (OTB) is a budgetary control system used by retailers to manage inventory purchases. It allows retailers to order merchandise based on actual sales trends while providing flexibility to adjust for unexpected changes in sales, markdowns, and other factors. The OTB method ensures that inventory levels are optimized, reducing the risk of overstock or stockouts.
Opening Stock represents the inventory held by an organization at the beginning of an accounting period, including raw materials, work in progress, and finished goods. It plays a crucial role in assessing the financial performance and stock levels of a company.
The operating cycle is the average period of time between acquiring inventory and receiving cash from its sale, reflecting the time required for a business to turn its investments into cash flows.
An Order Number is a reference number used by a wholesaler, manufacturer, or retailer to identify a particular order. This unique identifier helps in tracking and managing orders effectively.
The Order-Point System is an inventory management method wherein inventory is replenished automatically once it reaches a predetermined threshold, ensuring sufficient stock to meet demand and avoid stockouts.
OTB can refer to off-track betting, a gambling practice, or to 'open-to-buy,' a retail inventory management strategy.
Difference between the initially recorded store sales figures and the actual cash or audited figure, often caused by human error in making change or recording sales slips.
Overproduction refers to the excessive production of goods beyond consumer demand, resulting in surplus inventory and potential financial losses for businesses.
The concept of overrun in production refers to exceeding predefined production limits, often due to estimation errors, reduction in order size, or attempts to utilize excess materials.
A packing list is a detailed statement of the contents of a container, typically included within the container, used for counting and matching quantities of merchandise by the person who opens the container.
An accounting process used to determine the cost of inventory sold or put into production. Data on beginning inventory, purchases, and ending inventory are used to find the amount and cost of withdrawals from inventory.
Periodic stocktaking, also known as periodic inventory, refers to the counting or evaluating of stock held by an organization at the end of an accounting period. This process involves recording the physical number of goods on hand and is essential for determining accurate inventory levels and ensuring proper financial reporting.
A perpetual inventory system continuously tracks and records the amount of inventory in stock, allowing companies to maintain accurate and up-to-date inventory records at all times.
Physical distribution involves the process of moving finished products from the producer to the consumer, including all activities concerned with the efficient movement and storage of goods.
Physical Inventory, also known as a physical stock check, is the process of counting the physical balance of stock items at a particular time to facilitate stocktaking under systems like inventory control or continuous stocktaking.
The place where a retail transaction is completed, forming a critical component of the sales and inventory management process in retail operations.
A point-of-sale (POS) system is a combination of hardware and software that allows retail businesses to conduct and manage sales transactions effectively, often replacing traditional cash registers.
A purchase requisition is a formal document completed by a user department within an organization and sent to the purchasing department to request the acquisition of specific items. It details the quantity, specifications, potential supplier, required date, and delivery point.
The Purchases Account is used to record transactions involving the acquisition of goods either on credit or for cash. It plays a critical role in managing a company's inventory and financial records.
Purchases returns are goods purchased from a supplier that are returned due to being faulty, incorrect, or not meeting specifications.
RFID is the use of radio signals to recognize, from a few feet away, a tiny device (RFID chip) built into items such as price tags, ID cards, and passports. It is also used for tracking pets through subdermal implants.
The inventory of raw materials held at a specified time, which appears on the balance sheet under the heading of current assets.
