211c8m2

# 211c8m2 - Introduction to Financial Accounting Chapter 8...

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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 1 Chapter 8, Module 2 Chapter 8, Module 2 Slide 1 AMIS 211 Introduction to Financial Accounting Professor Marc Smith Chapter 8 Module 2 Chapter 8 Module 2 Hi everyone. Welcome back. Now that we know a little bit about inventory—when to record it—and specifically, when to record the expense related to it—and, a little bit about shipping terms, let’s continue our discussion. And let’s look at a couple of key formulas we are going to have to know. These are crucial in dealing with inventory. Let’s go ahead to the next slide.

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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 2 Chapter 8, Module 2 Slide 2 Chapter 8 Module 2: Inventory Formula IMPORTANT INVENTORY FORMULA: Beginning Inventory Add: Net Purchases Cost of Goods Available for Sale Deduct: Ending inventory Cost of goods sold Cost of goods sold And, this formula that we are going to pop up here on the screen in a second is one of those ones you just must know. This is crucial. We will see it over and over and over again. And the formula is: Take the Beginning Inventory balance, add (+) to it what we call Net Purchases—and we will look at this idea of Net Purchases in a few moments. That represents the Cost of Goods Available for Sale (CGAFS). So: take the inventory that you have at the beginning of the year, add (+) to it all of the inventory that you purchase—that gives us CGAFS, which stands for Cost of Goods Available for Sale. From the Cost of Goods Available for Sale (CGAFS), subtract (-) what you did not sell—subtract (-) your Ending Inventory. And, this will tell us what we did sell. That equals (=) our Cost of Goods Sold.
Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 3 Chapter 8, Module 2 Like I said, that is really a crucial formula. You just want to be comfortable with that. You want to be able to work with it. Now, if you would go to the next slide… Slide 3 Chapter 8 Module 2: Net Purchases NET PURCHASES: Purchases Deduct: Purchase Returns Deduct: Purchase Discounts Add: Freight-in Net Purchases Net Purchases Let’s analyze the Net Purchased piece of that. So, to calculate the Net Purchases—the number that goes into the equation on the previous slide—what you do is: you take your Purchases of Inventory, subtract (-) your Purchase Returns, subtract (-) your Purchase Discounts, and add (+) something called Freight-In.

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211c8m2 - Introduction to Financial Accounting Chapter 8...

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