Chapter 8 331

Chapter 8 331 - Lecture Notes for Chapter 8 (ACCT 331)...

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Lecture Notes for Chapter 8 (ACCT 331) Inventories: Measurement Merchandising Company: Purchases goods that are primarily in the finished form. They do not produce, so normally has only one type of inventory. Manufacturing Company: Usually produces the goods they sell. They could have three types of inventory: υ Raw materials Inventory: Items acquired for direct use in the production process. υ Work-in-progress inventory: Unfinished products which is expected to be sold upon completion. Includes the amounts of (i) raw materials, (ii) direct labor, and, (iii) manufacturing overhead, used. υ Finished goods inventory: Completed products held for sale. Alternative Inventory Systems: Perpetual Versus Periodic 0. Perpetual System: Records all (i) inventory purchase transactions, and, (ii) inventory sales transactions, as they occur (during the year). 1. Periodic System: Records (i) all inventory purchase transactions as they occur, (ii) inventory sales only at the end of the period (year). Example Beg S P S P S End 2000 1000 2000 1000 2000 1000 3000 |_____________|_______|____|_____________|____|_________| 1/1/98 3/1/98 5/1/98 6/1/98 9/1/98 10/1/98 12/31/98 Purchases are at $10 per unit and sales are at $15 per unit. Perpetual Periodic 3/1/98 1
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Perpetual Periodic 5/1/98 6/1/98 9/1/98 10/1/98 12/31/98 NOTES Year end journal entry under the periodic system uses the basic inventory equation: Inventory (beg.) + Purchases – Inventory (end) = Cost of goods sold. The perpetual system provides more information and can identify inventory shortages and losses better. 2
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The periodic method is generally less costly to operate but does require a physical count at the end of the period. Goods in Transit Free-on-board (FOB) shipping point: Title transfers to the purchaser at shipping point. Free-on-board destination: Title transfers to purchaser upon arrival.
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Chapter 8 331 - Lecture Notes for Chapter 8 (ACCT 331)...

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