Chapter 6 - Chapter 6: Inventory & Cost of Goods Sold...

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Chapter 6, Page 1 Dr. Ron Lazer Chapter 6: Inventory & Cost of Goods Sold Dr. Ron Lazer Fall 2009 Fifth Quiz s Date: Thursday, October 22 nd , 2009 s Content: Chapter 6 (specific instructions will be provided during the next classes) s Allowed material: 4 function calculator Ron Lazer, Ph.D.
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Chapter 6, Page 2 Dr. Ron Lazer Accounting Concepts & Principles s Consistency Principle – ability to compare financial information across years for a single firm s Disclosure Principle all information needed by decision-makers should be included in the financials or in the notes b Comparability - ability to compare financial information across firms. Ron Lazer, Ph.D. Exceptions (Constraints) to the Basic Concepts and Principles s Materiality Concept (the immateriality constraint) – under relevance and reliability . b Only transactions with amounts large enough to make a difference are considered material b Nonmaterial transactions can be given alternative treatments s Conservatism - when in doubt - under reliability b Understate assets b Overstate liabilities b Accelerate recognition of losses b Delay recognition of gains Ron Lazer, Ph.D.
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Chapter 6, Page 3 Dr. Ron Lazer Class Case s Following the changes in gas prices, Dan decided to discontinue his airport shuttle business and open a small wine store. He slowly started to purchase wine bottles for the store. s On 9/15/09 he bought one bottle for $50 . s On 9/19/09 he bought another bottle of the same type for $55 . s On 9/25/09 he sold one of the bottles for $62 . s On 9/30/09 he bought another bottle of the same type for $57 . s Questions: b What is the $ amount of Inventory on 9/30/09? b What is the Cost of Good Sold (COGS) for the month of September2009? b What is the Net Income for the month of September 2009? Ron Lazer, Ph.D. Class Case – Dan’s wine store Dan’s wine store Balance Sheet (partial) 9/30/2009 Current assets: Cash $X A/R X Inventory ___ Dan’s wine store Income Statement (partial) Month ended 9/30/09 Sales revenues $62 Cost of goods sold ___ Gross profit ___ Operating exp. 0 Net Income ___ Ron Lazer, Ph.D.
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Chapter 6, Page 4 Dr. Ron Lazer Financial Accounting GAAP The Accounting Information System Financial Statements Balance Sheet Income Statement Ron Lazer, Ph.D. Chapter’s Objectives Ron Lazer, Ph.D. Inventory & COGS
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Chapter 6, Page 5 Dr. Ron Lazer Inventory – Basic Accounts s Balance Sheet: b Cost of Inventory on hand = # of units on hand x unit cost s Income Statement: b Cost of goods sold = # of units sold x unit cost b Gross profit = Sales revenues–Cost of goods sold b Net Income = Gross profit – Operating expenses – Other Expenses + Other Revenues b Cost of goods available for sale = Purchases + Beginning Inventory Ron Lazer, Ph.D. Purchasing Inventory:
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Chapter 6 - Chapter 6: Inventory & Cost of Goods Sold...

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