Lecture12 2010.10 PreClass

Lecture12 2010.10 PreClass - Lecture 12 Inventory...

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Lecture 12 1 Inventory Accounting
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Announcements • Exam 1 Re-grade request deadline: 10/27 @ 4:30pm xam 2 notification of conflict deadline: • Exam 2 notification of conflict deadline: 10/29 • Upcoming events – HW #2: 11/7 9am – Exam 2: 11/8 6-8pm 2
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Key Issues in Inventory Accounting 1) How should the inventory be valued at acquisition? 2) How should the cost of goods sold (used) be determined? Today’s Class 3 – How should the inventory be valued subsequent to acquisition? 3) What happens if inventory loses value? 4) What costs are included in inventory? Lecture 13
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Goals of Today’s Class • Accounting for inventory acquisition • Accounting for use of inventory – FIFO – LIFO • LIFO Reserve • LIFO Liquidation – Weighted Average Cost 4
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Accounting for Acquisition of ventory Inventory 5
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Accounting for Acquisition Inventory XXX 6 Cash (or Accounts Payable) XXX
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Accounting for Use of Inventory 7
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Accounting for Use of Inventory • What we have seen so far: Sale (use) Cost of Goods Sold (Expense) YYY Inventory YYY 8
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Issues: • Since historical cost is used as the basis for valuing inventories, then identical goods purchased at different times may have Accounting for Use of Inventory different values associated with them. – How do you decide between how much to allocate for COGS and how much to inventory? • There is also a timing issue as to when inventory use should be recorded. 9
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Timing: When should the Cost of Goods Sold be Recorded? The Perpetual Method: Both purchases and sales (use) of inventory are recorded as they occur. Both the inventory account balance and the cost of goods sold (COGS) account balance are always up to date, reporting the cost of inventories on hand and the cost of goods sold to date, respectively. The Periodic Method: Purchases are recorded as they occur, but COGS are recorded only at the end of the period (as an adjusting entry). Thus, the inventory account balance and the COGS account balance are only up to date at the end of the period, after the adjusting entry, to record COGS, has been recorded and posted. For financial reporting, most firms use the periodic method.
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Under the periodic inventory method… Inventory Cost of Beginning Inventory Cost of goods 11 Cost of Acquisitions Cost of Goods Sold / Used Cost of Ending Inventory available for sale While, in general, the quantity of goods sold and the quantity of goods held in the ending inventory are known, the cost of goods sold and the cost of the ending inventory must be determined
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Allocating Cost of Goods Available for Sale 12
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goods available for sale that were purchased at different costs, then we need to answer the following question: hich costs are to be associated with the 13 Which costs are to be associated with the ending inventory and which are to be associated with the goods sold? • How does the answer to this question
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Lecture12 2010.10 PreClass - Lecture 12 Inventory...

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