{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Review Notes Ch 6

Review Notes Ch 6 - CHAPTER 6 Reporting and Analyzing...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 6 Reporting and Analyzing Inventory Study Objectives 1. Describe the steps in determining inventory quantities. 2. Explain the basis of accounting for inventories and apply the inventory cost flow methods under a periodic inventory system. 3. Explain the financial statement and tax effects of each of the inventory cost flow assumptions. 4. Explain the lower of cost or market basis of accounting for inventories. 5. Compute and interpret the inventory turnover ratio. 6. Describe the LIFO reserve and explain its importance for comparing results of different companies. 7. (Appendix 6A) Apply the inventory cost flow methods to perpetual inventory records. 8. (Appendix 6B) Indicate the effects of inventory errors on the financial statements. 6-1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Chapter Outline Study Objective 1 - Describe the Steps in Determining Inventory Quantities In a merchandising company, inventory consists of many different items. These items have two common characteristics: (1) they are owned by the company and (2) they are in a form ready for sale to customers. Only one inventory classification, merchandise inventory , is needed to describe the many different items that make up the total inventory. In a manufacturing company , inventory is usually classified into three categories: Finished goods, Work in process, and Raw materials. Raw materials inventory the basic goods that will be used in production but have not yet been placed into production. Work in process —that portion of manufactured inventory that has been placed into the production process but is not yet complete. Finished goods inventory —items that are completed and ready for sale. By observing the levels and changes in the levels of these three inventory types, financial statement users can gain insight into management’s production plans. No matter whether they are using a periodic or perpetual inventory system, all companies need to determine inventory quantities at the end of the accounting period. If using a perpetual system, companies take a physical inventory at year-end for two purposes: (1) to check the accuracy of their perpetual inventory records and (2) to determine the amount of inventory lost due to wasted raw materials, shoplifting or employee theft. Companies using a period inventory system must take a physical inventory for two different purposes: (1) to determine the inventory on hand at the balance sheet date and (2) to determine the cost of goods sold for the period.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 7

Review Notes Ch 6 - CHAPTER 6 Reporting and Analyzing...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon bookmark
Ask a homework question - tutors are online