Ch08 Inventories-Measurement - Inventories Measurement 1...

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1 Inventories: Measurement
2 Chapter 8 Inventory cost Recording of inventory (Inventory system) Cost flow assumptions LIFO reserve LIFO liquidation Methods of simplifying LIFO
3 Types of Inventory Merchandise inventory Focus of this course Goods that are purchased primarily in finished form from wholesalers and retailers Cost of merchandise inventory includes purchase price plus any other costs necessary to get the goods in condition and location for sale Manufacturing inventory Focus of managerial accounting Goods that are produced by a manufacturing company to be sold to wholesalers, retailers, or other manufacturers Consists of: - Raw materials - Work-in-process - Finished goods
4 Merchandise Inventory Issues related to merchandise inventory Recording system - Periodic - Perpetual Inventory system: Determines cost of ending inventory and COGS - Unit inventory system based on cost flow assumption * Specific identification * FIFO * LIFO * Average cost - Inventory pool - Dollar value LIFO - Retail inventory methods (Chapter 9) In addition to cost determined from inventory system, following should be included in cost of inventory - # of units (i.e., physical quantities) included in inventory - All costs necessary to prepare the goods for sale Subsequent valuation of merchandise inventory (Chapter 9) - Lower Cost or NRV - Lower Cost or Market: LIFO & Retail Inventory Method
5 Merchandise Inventory: Recording Periodic Perpetual Frequency of adjustment At the end of reporting period Whenever sales and purchases are made When purchased Purchase xxx Cash (A/P) xxx Merchandise inventory xxx Cash (A/P) xxx When returned Cash (A/P) xxx Purchase returns xxx Cash (A/P) xxx Merchandise inventory xxx When sold Cash (A/R) xxx Sales xxx Cash (A/R) xxx Sales xxx COGS xxx Merchandise inventory xxx End of period adjusting entry Merchandise inventory xxx (Ending) COGS xxx Merchandise inventory xxx (Beginning) Purchase xxx No adjusting entry
6 Merchandise Inventory: Recording Example 1 Lothridge Wholesale Beverage Company (LWBC) begins 2013 with $120,000 in inventory. During the period it purchases on account $600,000 of merchandise for resale to customers. During 2013, LWBC sold, on account, inventory with a retail price of $820,000 and a cost basis of $540,000, to customers. Lothridge applies perpetualrecording system. Complete journal entries for inventory purchase and sales, and adjusting entry if necessary.
7 Merchandise Inventory: Recording Example 2 Lothridge Wholesale Beverage Company (LWBC) begins 2013 with $120,000 in inventory. During the period it purchases on account $600,000 of merchandise for resale to customers. During 2013, LWBC sold, on account, inventory with a retail price of $820,000 and a cost basis of $540,000, to customers. Lothridge applies periodicrecording system. Complete journal entries for inventory purchase and sales, and adjusting entry if necessary.
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