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inventory - RetailInventory Dr.JamesGong Agenda n n n n...

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Click to edit Master subtitle style Retail Inventory Dr. James Gong
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Agenda n Periodic inventory systems n FIFO and LIFO n In-class practice problem n FIFO vs. LIFO comparison n LIFO reserve n Dollar value LIFO n In class practice problem n Perpetual inventory systems
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Physical Flow vs. Money Flow Companies purchase, manufacture, and sell  constantly. n How do companies deal with the cost flows? n Periodic and perpetual inventory systems
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Periodic Inventory System § Inventory balances at beginning of year is last year’s  ending balance. § When goods are bought you use the purchases account  to record them.   § When inventory is sold you record the event (revenue and  AR).   § You count the inventory and update it at the year end.   § Cost of goods sold is only recorded at year end. § You calculate the cost of goods sold as in cost flow (4).
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n Journal entries: To buy : Purchases XX A/P XX ** Assumes the gross approach is taken To return: A/P XX Purchase Returns and Allowances XX Periodic Inventory System
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To sell:   A/R XX         Sales XX Year end adjusting entries: CGS XX Beginning inventory XX CGS      XX         Purchase XX Ending inventory XX CGS XX Periodic Inventory System
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Periodic Inventory System § Inventory is not up to date. § Cost of goods sold depends on the  assumption of the order in which product  costs enter into inventory and the order in  which inventory is sold.
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Cost flow assumptions: How dollars are  assigned to goods as they are sold.  Methods: n First-in, First-out  (FIFO) n Last-in, First-out  (LIFO) n Specific identification Weighted average Periodic Inventory Systems
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