Average days’ inventory on hand The average number of days required to sell the inventory on hand; number of days in a year divided by inventory turnover.






Consignment Merchandise that its owner (the consignor) places on the premises of another company (the consignee) with the understanding that payment is expected only when the merchandise is sold and that unsold items may be returned to the consignor.

Cost flow The association of costs with their assumed flow in the operations of a company.






Goods flow The actual physical movement of goods in the operations of a company.

Gross profit method A method of inventory estimation based on the assumption that the ratio of gross margin for a business remains relatively stable from year to year. Also called gross margin method.






Inventory cost "The price paid or consideration given to acquire an asset; includes invoice price less purchases discounts, plus freight in, plus applicable taxes and tariffs."

Inventory turnover A ratio indicating the number of times a company’s average inventory is sold during an accounting period; cost of goods sold divided by average inventory.

Item-by-item method A lower-of-cost-or-market method of valuing inventory in which cost and market values are compared for each item in inventory and each item is then valued at its lower price.






Just-in-time operating environment A system of reducing levels of inventory by working closely with suppliers to coordinate and schedule deliveries so that goods arrive just at the time they are needed.






LIFO liquidation The reduction of inventory below previous levels so that income is increased by the amount by which current prices exceed the historical cost of the inventory under LIFO.

Lower-of-cost-or-market (LCM) rule A method of valuing inventory at an amount less than cost when the replacement cost falls below historical cost.






Major category method A lower-of-cost-or-market method of valuing inventory in which the total cost and total market values for each category of items are compared and each category is then valued at its lower amount.

Market Current replacement cost of inventory.

Merchandise inventory All goods owned and held for sale in the regular course of business.






Retail method "A method of inventory estimation, used in retail merchandising businesses, in which inventory at retail value is reduced by the ratio of cost to retail price."






Specific identification method An inventory costing method in which the price of inventory is computed by identifying the cost of each item in ending inventory as coming from a specific purchase.

Supply-chain management A system of managing inventory and purchasing through business-to-business transactions conducted over the Internet.