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Ch.6 Inventory - Chapter 6 Reporting and Analyzing...

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Chapter 6 Reporting and Analyzing Inventory
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In Chapter 6 We will learn: How to calculate Cost of Goods Sold and Ending Inventory using the four Inventory Cost Flow Assumptions: o Specific Identification o Weighted Average Cost o FIFO o LIFO
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Remember the very first question of our class (Session 01)? What inventory is sold?
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Accounting choices for a simple (or a complex?) business Mike had $25. He bought two T-shirts from a wholesaler, one for $10 and the other for $15. Any loss/profit? He sold one for $30. How much did he make? How much does he have left? 20? 15? 17.5? 5? He learned that similar T-shirts are imported and sold for $5 at X-Mart. Any loss?
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Specific Identification Method Each Unit Sold must be identified as coming from a specific purchase of inventory, at a specific cost. I know the VIN (Vehicle Identification number) of each car
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Specific Identification Method If the Blue Car is sold, Cost of Goods Sold is $22,000. I paid $22,000 for the Blue Car. Assets = Liabilities + Shareholders Equity Inventory Retained Earnings -22,000 -22,000
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Specific Identification Method Is appropriate for firms with a small number of items that are generally large, luxury items such as custom jewelry, yachts or luxury cars.
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Specific Identification Method Would not be appropriate for firms with many identical items with relatively low costs such as sneakers, soup or candy bars.
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Weighted Average Cost Method Put all of the dollars in the numerator. 2 @ $50 = $100 1 @ $60 = $ 60 1 @ $68 = $ 68 $228 $228
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Put all of the Units in the denominator. 2 @ $50 = $100 1 @ $60 = $ 60 1 @ $68 = $ 68 $228 Weighted Average Cost Method $228 4 = $57 average cost per unit
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This average cost is applied to all units sold, and all units held in inventory $228 4 = $57 average cost per unit If 3 units are sold, cost of goods sold would be: 3 @ $57 = $181 Ending Inventory would be: 1 @ $57 = $57
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All units and all dollars are accounted for: 4 units @ $57 3 units @ $57 1 unit @ $57
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