lec07a - Chapter7:ReportingandInterpretingCost...

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Chapter 7: Reporting and Interpreting Cost  of Goods Sold and Inventory
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Learning objectives Apply the cost principle to identify the amounts that  should be included in inventory  Report inventory and cost of goods sold using the four  inventory costing methods Report inventory at the lower of cost or market Perpetual versus periodic inventory systems Inventory turnover ratio
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Inventory and cost of goods sold (Merchandiser)
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Inventory and cost of goods sold (Manufacturer)
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Slide 5 Inventory Merchandise Merchandise Purchases Purchases Cost of Cost of Goods Sold Goods Sold Merchandise Merchandise Inventory Inventory Merchandiser Raw Raw Materials Materials Raw Materials Raw Materials Inventory Inventory Work in Process Work in Process Inventory Inventory Finished Goods Finished Goods Inventory Inventory Cost of Cost of Goods Sold Goods Sold Manufacturer Direct Direct Labor Labor Factory Factory Overhead Overhead Inventory is tangible property that is held for sale in the normal course of business , or used to produce goods or services for sale
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What is included in inventory (footnotes)
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Slide 7 Costs Included in Inventory Purchases The cost principle cost principle requires that inventory be recorded at cost, including the purchase price, plus any other costs incurred in bring the inventory item to usable or salable condition or location. Invoice Price Freight Inspection Costs Preparation Costs
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M7-2: Elite Apparel Elite Apparel purchased 90 new shirts and recorded a total  cost of $2,620 determined as follows:      Invoice cost                                      $2,180      Shipping charges                                        175      Import taxes and duties                              145      Interest (5.5%) on loan      borrowed to finance the purchase             120        2,620 Make the needed corrections in this calculation: at what  cost the company should record the purchase?
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Slide 9 Nature of Cost of Goods Sold Beginning Beginning Inventory Inventory Purchases Purchases for the Period for the Period Ending Inventory Ending Inventory (Balance Sheet) (Balance Sheet) Goods available Goods available for Sale for Sale Cost of Goods Sold Cost of Goods Sold (Income Statement) (Income Statement) Beginning inventory + Purchases = Goods Available for Sale Beginning inventory + Purchases = Goods Available for Sale Goods Available for Sale – Ending inventory = Cost of goods sold Goods Available for Sale – Ending inventory = Cost of goods sold
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Slide 10 Nature of Cost of Goods Sold Inventory Beginning inventory Purchase Ending inventory Cost of goods sold Ending inventory (EI) Ending inventory (EI) = Beginning inventory (BI) + Purchase (P) – Cost of Goods Sold (COGS) = Beginning inventory (BI) + Purchase (P) – Cost of Goods Sold (COGS)
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M7-4: Inferring Purchases Inventory Beg. bal.: $2,969 Purchase: ?
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lec07a - Chapter7:ReportingandInterpretingCost...

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