CHAPTER 8 Inventory TIPS


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CHAPTER 8: INVENTORIES MEASUREMENT TIP: The term “inventory” or “merchandise inventory” is the label given to goods held by a merchandise firm ( either wholesale or retail) when goods have been acquired for resale. The terms raw materials, work in process, and finished goods refer to inventories of a manufacturing entity. TIP: The cost of an inventory item includes all costs necessary to acquire the item and bring it to the location and condition for its intended use. This cost would include the item’s purchase price, transportation-in, and any special handling charge. However, transportation-out is not included in the cost of inventory-it is classified as a selling expense on the income statement for the period in which the expense was incurred. TIP: The transportation terms designate the point at which title passes. F.o.b. shipping point (seller) means the title passes to the buyer when it leaves the seller’s dock. F.o.b. destination(buyer)
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