WRD_ch07 - 7-17InventoriesInventories1Describe the...

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Unformatted text preview: 7-17InventoriesInventories1Describe the importance of control over inventories.2Describe three inventory cost flow assumptions and how they impact the income statement and balance sheet.3Determine the cost of inventory under the perpetual inventory system, using the FIFO, LIFO, and average cost methods.After studying this chapter, you should be able to:7-2Inventories (continued)After studying this chapter, you should be able to:4Describe the cost of inventory under the periodic inventory system, using the FIFO, LIFO, and average cost methods.5Compare and contrast the use of the three inventory costing methods.6Describe and illustrate the reporting of merchandise inventory in the financial statements.7-3Describe the importance of control over inventory.17-47-5Two primary objectives of control over inventory are:1.Safeguarding the inventory, and1.Properly reporting it in the financial statements.17-6The purchase orderauthorizes the purchase of the inventory from an approved vendor.The receiving reportestablishes an initial record of the receipt of the inventory.The amount of inventory is always available in the subsidiary inventory ledger.17-7Controls for safeguarding inventory should include security measures to prevent damage and customer or employee theft. Some examples of security measures include the following:1.Storing inventory in areas that are restricted to only authorized employees.17-81.Locking high-priced inventory in cabinets.1.Using two-way mirrors, cameras, security tags, and guards.17-9A physical inventoryor count of inventory should be taken near year-end to make sure that the quantity of inventory reported in the financial statements is accurate.17-10Describe the three inventory cost flow assumptions and how they impact the income statement and balance sheet.27-107-11Inventory Costing Methods27-12May 10 Purchase1$ 918Purchase11324Purchase114Total3$36Average cost per unit $12 ($36 3 units) 27-13Assume that one unit is sold on May 30 for $20. Depending upon which unit was sold, the gross profit varies from $11 to $6 as shown below:27-14Under the specific identificationinventory cost flow method, the unit sold is identified with a specific purchase.Not practical unless each inventory unit can be separately identified..27-15Under the first-in, first out (FIFO)inventory cost flow method, the first units purchased are assumed to be sold and the ending inventory is made up of the most recent purchases.27-16Under the last-in, first out (LIFO)inventory cost flow method, the last units purchased are assumed to be sold first and the ending inventory is made up of the first units purchased.27-17Under the average inventory cost flow method, the cost of the units sold and in ending inventory is an average of the purchase costs....
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This note was uploaded on 08/11/2010 for the course ACCT 1A taught by Professor Seyedin during the Spring '10 term at Foothill College.

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WRD_ch07 - 7-17InventoriesInventories1Describe the...

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