Chapter 7-9

Chapter 7-9 - LCM Method(lower of cost or market Compares...

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LCM Method (lower of cost or market) Compares cost to replacement cost Recorded at the lower of cost or designated market value (DMV) DMV is a replacement cost that must fall between the “ceiling” and the “floor” Ceiling = Net Realizable Value (NRV) = Sales Price – Disposal Cost Floor = NRV – profit margin Report the lower of DMV or original cost on the balance sheet. Perpetual Inventory System Uses Inventory acct. for all journal entries relating to purchases and sales CGS is computed at the time of the sale 2 methods: Net method or Gross method Allows managers more control over inventory and provides more accurate information about inventory at any point in time Periodic Inventory System Uses Purchases acct. for all journal entries relating to purchases (Purchase Discounts, Purchase Returns and Allowances, Freight-In Expense) CGS is computed at the end of the accounting period The Inventory acct. will not be updated until the end of the accounting period
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Chapter 7-9 - LCM Method(lower of cost or market Compares...

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