ACIS+2115+Chapter+7+Lecture+Fall+2009

ACIS+2115+Chapter+7+Lecture+Fall+2009 - Chapter 7 Reporting...

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Chapter 7 Reporting and Interpreting Inventories and Cost of Goods Sold
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Learning Objective 1 Describe inventory management goals.
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Inventory Management Decisions The primary goals of inventory managers are to: 1.ensure sufficient quantities of inventory are available to meet customer’s needs, 2.ensure inventory quality meets customers’ expectations and company standards, and 3.minimize the costs of acquiring and carrying inventory
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Learning Objective 2 Describe the different types of inventory.
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Items Included in Inventory Inventory includes goods that are: 1.held for sale in the normal course of business, or 2.used to produce goods for sale. Inventory is reported on the balance sheet as a current asset. Balance Sheet Balance Sheet Current Assets Current Assets Inventory Inventory
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Types of Inventory Merchandiser Manufacturer Merchandise Inventory Raw materials inventory Work in process inventory Finished goods inventory
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Additional Terminology Consignment inventory - goods company is holding on behalf of goods’ owner Goods in Transit – inventory being transported FOB Destination – goods belong to seller until delivered to customer FOB Shipping Point – goods belong to customer at the moment they leave the seller’s premises
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Cost of Goods Sold Beginning Inventory $20,000 Purchases $30,000 Goods Available for Sale $50,000 + + Ending Inventory $10,000 Still Here Cost of Goods Sold $40,000 Sold
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Cost of Goods Sold Equation CGS (or COGS) = BI + P - EI Cost of Goods Sold Beginning Inventory Purchases Ending Inventory The Periodic Inventory Method relies on this equation to determine Cost of Goods Sold. Ending inventory is determined by a physical count and then used to calculate Cost of Goods Sold.
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Cost of Goods Sold Beginning inventory 20,000 $ + Purchases of merchandise during the period 30,000 = Cost of goods available for sale 50,000 Ending inventory 10,000 = Cost of goods sold 40,000 $ Schedule of Cost of Goods Sold
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Learning Objective 3 Compute costs using four inventory costing methods.
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Inventory Costing Methods First-in, first-out (FIFO) Last-in, first-out (LIFO) Weighted average Specific identification When the cost of inventory items purchased by a company changes, what amount should the company use for Cost of Goods Sold when an item is sold? What amount should be used for Ending Inventory?
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Inventory Costing Illustration Cost of Goods Available for Sale Cost per Total Units Unit Cost Jan. 1 Beg. Inventory 1 20 $ 20 $ Apr. 5 Purchase 4 30 120 Jun. 15 Purchase 2 40 80 Available for sale 7 220 $ Selling Total Retail Sales of Goods Units Price Revenue Oct. 5 Sold 5 60 $ 300 $ Total units sold 5 Units in ending inventory 2 Data for Hokie Corp.
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Specific Identification The cost of each item sold is individually identified and recorded as cost of goods sold.
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