Chapter 6 Notes-2.docx - Chapter 6: Merchandise Inventory...

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Chapter 6:Merchandise InventoryI. Accounting Principles and Concepts related to accounting for inventory:Consistency Principle –businesses should use the same accounting methods from period toperiod.Improves the user’s ability to compare results across time.Disclosure Principle –businesses should disclose enough information in financial statements sothat outsiders can make knowledgeable decisions about the business.Materiality Concept –business must apply GAAP strictly on all items that are “material”.Anitem is material if it would cause someone to change a decision.If an item is not material,accountants may deviate from strict application of GAAP.Conservatism –exercising caution when reporting items in the financial statements.If all else isequal, choose the option that would undervalue – rather than overvalue – the business.II. Inventory Costing Methods – Perpetual MethodInventoryis a current asset reported on the Balance Sheet.The amount that should bereported is the costof the inventory the business has on hand on the last day of the currentperiod.Cost of goods soldis an expense account that is reported on the Income Statement.Itrepresents the cost of acquiring the units the business sold during the current period.These computations are simple when the unit cost doesn’t change during the period.However,

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Term
Spring
Professor
Dr. Miller
Tags
Goods Sold

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