Chapter 8 - Chapter 8 Valuation of Inventories Inventory...

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Chapter 8 Valuation of Inventories Inventory Overview Defined - asset items held for sale in the ordinary course of business, or goods to be used in the production of goods to be sold o Merchandise Inventory o Manufacturing Inventory Inventory systems - used for planning and control o Perpetual inventory system - keeps up-to-date records of inventory and cost of goods sold Purchases, returns and freight charges are recorded in Inventory Inventory is updated and COGS calculated for every sale o Periodic inventory system - inventory is counted periodically and COGS is calculated Relies on purchases, returns, and freight in accounts Inventory account is updated only after a physical count o Physical inventory counts are necessary under both perpetual and periodic systems Physical Goods Included in Inventory Goods in transit - goods are included in inventory when title passes
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o FOB shipping point - title passes when the vendor delivers the goods to the shipper (buyer includes in inventory when shipped) o FOB destination - title passes when the goods reach their destination (buyer includes in inventory when goods are received) Consigned goods - belong to the consignor (even if physically located at the consignee's business) Special sale agreements - may affect the inclusion of goods in inventory
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Chapter 8 - Chapter 8 Valuation of Inventories Inventory...

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