Chapter08 - 8-1 Chapter 8 INVENTORIES AND COST OF GOODS SOLD

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BUSI1002KLT, 07/08 8-1 INVENTORIES AND COST OF GOODS SOLD Chapter 8
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BUSI1002KLT, 07/08 8-2 Inventory Goods owned and held for sale to customers Current asset Inventory Defined
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BUSI1002KLT, 07/08 8-3 INCOME STATEMENT Revenue Cost of goods sold Gross profit Expenses Net income Purchase costs (or manufacturing costs) as goods are sold BALANCE SHEET Asset Inventory The Flow of Inventory Costs
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BUSI1002KLT, 07/08 8-4 GENERAL JOURNAL Date Account Titles and Explanation Debit Credit Entry on Purchase Date Inventory $$$$ Accounts Payable $$$$ Entry on Sale Date Cost of Goods Sold $$$$ Inventory $$$$ In a perpetual inventory system, inventory entries parallel the flow of costs. The Flow of Inventory Costs
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BUSI1002KLT, 07/08 8-5 When identical units of inventory have different unit costs , a question naturally arises as to which of these costs should be used in recording a sale of inventory. Which Unit Did We Sell?
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BUSI1002KLT, 07/08 8-6 A separate subsidiary account is maintained for each item in inventory. How can we determine the unit cost for the Sept. 10 sale? Item LL002 Primary supplier Electronic City Description Laser Light Secondary supplier Electric Company Location Storeroom 2 Inventory level: Min: 25 Max: 200 Purchased Sold Balance Date Units Unit Cost Total Units Unit Cost of Goods Sold Units Unit Total Sept. 5 100 30 $ 3,000 $ 100 30 $ 3,000 $ Sept. 9 75 50 3,750 100 30 3,000 75 50 3,750 Sept. 10 10 ? ? ? ? ? ? ? ? Inventory Subsidiary Ledger
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BUSI1002KLT, 07/08 8-7 Learning Objective LO1 In a perpetual inventory system, you are to determine the cost of goods sold using (a) specific identification, (b) average cost, (c) FIFO, and (d) LIFO. You should be able to discuss the advantages and shortcomings of each method.
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BUSI1002KLT, 07/08 8-8 We use one of these inventory valuation methods to determine cost of inventory sold. Inventory Cost Flows Specific Identification Average Cost LIFO FIFO
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BUSI1002KLT, 07/08 8-9 The Bike Company (TBC) Data for an Illustration
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BUSI1002KLT, 07/08 8-10 Specific Identification When a unit is sold, its specific cost is added to cost of goods sold.
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BUSI1002KLT, 07/08 8-11 On August 14, TBC sold 20 bikes for $130 each. On August 14, TBC sold 20 bikes for $130 each. Of the bikes sold 9 originally cost $91 and Of the bikes sold 9 originally cost $91 and 11 cost $106. 11 cost $106. Specific Identification
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BUSI1002KLT, 07/08 8-12 The Cost of Goods Sold for the August 14 sale is The Cost of Goods Sold for the August 14 sale is $1,985, leaving $515 and 5 units in inventory. $1,985, leaving $515 and 5 units in inventory. Let’s look at the entries for the Aug. 14 sale. Let’s look at the entries for the Aug. 14 sale. Specific Identification
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BUSI1002KLT, 07/08 8-13 Retail (20 × $103) Cost A similar entry is made after each sale. Specific Identification
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BUSI1002KLT, 07/08 8-14 Additional purchases were made on August 17 and 28. Costs associated with sales on August 31 were as follows: 1 @ $91, 3 @ $106, 15 @ $115, & 4 @ $119.
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This note was uploaded on 04/20/2010 for the course BUSI BUSI1002 taught by Professor Drjasmine during the Spring '10 term at HKU.

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Chapter08 - 8-1 Chapter 8 INVENTORIES AND COST OF GOODS SOLD

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