Chapter 08 - Slides_1

Chapter 08 - Slides_1 - Valuation of Inventories Valuation...

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aluation of Inventories Valuation of Inventories rofessor Dennis Chambers Professor Dennis Chambers ACC 301 Chapter 8 Objectives entif major classifications of in entor ± Identify major classifications of inventory ± Distinguish between perpetual and periodic inventory systems ± Identify the effects of inventory errors on the financial statements ± Describe and compare the flow assumptions used in ti f i t i accounting for inventories ± Explain the significance and use of a LIFO reserve ± Explain the effect of LIFO liquidations ± Explain the dollar-value LIFO method ± Identify the major advantages and disadvantages of LIFO entify the reasons why a given inventory method is selected 6/10/2008 ACC 301 2 ± Identify the reasons why a given inventory method is selected Inventory Classifications and Cost Flow 6/10/2008 ACC 301 3 Inventory Control Systems eriodic S stem erpet al S stem ± Periodic System ² Purchases of merchandise or raw materials are debited to a temporary account called ± Perpetual System ² Purchases of merchandise or raw materials debited directly to Inventory “Purchases” ² Freight-in, purchase returns, and allowances are recorded separate accounts ² Freight-in, purchase returns and allowances are recorded directly to Inventory ost of goods sold are to separate accounts ² Ending inventory is determined by a required physical count at the end of e period ² Cost of goods sold are recognized for each sale by debiting the Cost of Goods Sold account the period ² Cost of Goods Sold is debited once at the end of the period 6/10/2008 ACC 301 4
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Inventory Systems - Examples acts: Facts: Beginning inventory of 25 units @ $400 10,000 $ Purchases of 80 units @ $400 32,000 Sales of 74 units @ $500 37,000 Physical count of ending inventory: 30 units @ $400 12,000 yg y @ Periodic System Perpetual System Purchase: Purchase: Purchases 32,000 Inventory 32,000 Accts. Payable 32,000 Accts. Payable 32,000 Sale: Sale: Accts. Receivable 37,000 Accts. Receivable 37,000 (74 units x $400 cost) , , Sales Revenue 37,000 COGS 29,600 Sales Revenue 37,000 At year end: Inventory 29,600 COGS (plug) 30,000 6/10/2008 ACC 301 5 Inventory 12,000 At year end: Inventory 10,000 Inventory short 400 Purchases 32,000 Inventory 400 Who owns what, when? ± Firms report as inventory the goods to which they hold title ± Sales (and removal from inventory) are recorded when title passes to the buyer ± Goods in transit ometimes goods are in transit at the end of the ² Sometimes goods are in transit at the end of the accounting period ² e have rules to determine who holds title 6/10/2008 ACC 301 6
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This note was uploaded on 01/20/2011 for the course ACC 301 taught by Professor Staff during the Fall '08 term at Kentucky.

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Chapter 08 - Slides_1 - Valuation of Inventories Valuation...

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