211c8m3 - Introduction to Financial Accounting Chapter 8,...

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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 1 Chapter 8, Module 3 Chapter 8, Module 3 Slide 1 AMIS 211 Introduction to Financial Accounting Professor Marc Smith Chapter 8 Module 3 Chapter 8 Module 3 Hi everyone. Welcome back. Let’s go ahead in this Module and pick up right where we left off in the previous Module. In fact, let’s just go right to the next slide.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 2 Chapter 8, Module 3 Slide 2 Chapter 8 Module 3: Inventory Formula Beginning Inventory Add: Net Purchases Cost of Goods Available for Sale 247 Deduct: Ending inventory 100 Cost of goods sold 147 Main question to be answered: How do we determine how much of the $247 is in ending inventory and thus appears as an asset on the balance sheet and how much of the $247 is part of cost of goods sold and thus appears as an expense on the income statement? And, hopefully, you remember this: There is that basic inventory equation—the one that we really need to be comfortable with. And, remember: Cost of Goods Available for Sale (CGAFS)—in our example, we made it up as $247.00—represented the Total Inventory Cost. And, the main question that we needed to answer was: How do we take that Total Inventory Cost and split it—spread some of that cost to the Balance Sheet as part of Ending Inventory and some of that cost to the Income Statement as Cost of Goods Sold? And, you can see here on my slide (Slide 2), I have done it in a way that sent $100.00 to the Balance Sheet and $147.00 as Cost of Goods Sold to the Income Statement. But, the big question is: How do we do it and do it correctly?
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 3 Chapter 8, Module 3 If we go to the next slide… Slide 3 WEIGHTED AVERAGE Chapter 8 Module 3: Cost Flow Methods These methods are used to calculate ending inventory on the balance sheet and cost of goods sold on the income statement. LIFO FIFO We should remember the way in which we do that is based on the Inventory Cost Flow method we are following. And, these Cost Flow methods, which enable us to calculate the Cost of Goods Sold on the Income Statement and the Ending Inventory on the Balance Sheet; these are FIFO—F-I-F-O—LIFO—L-I-F-O—and Weighted Average. And, what I would like to do in this Module is: let’s take a look at each one of these in depth. Let’s talk about: What does FIFO assume? What does LIFO assume? And, what does Weighted Average assume? In order to do these calculations of: Cost of Goods Sold and Ending Inventory. Let’s go to the next slide.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 4 Chapter 8, Module 3 Slide 4 1. Assumes the oldest or earliest inventory items purchased are the first goods to be sold.
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This note was uploaded on 04/21/2008 for the course ACCT 211m taught by Professor Zeigler/smith during the Winter '07 term at Ohio State.

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211c8m3 - Introduction to Financial Accounting Chapter 8,...

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