Accounting 312- ch 9 - Acc 312 Chapter 9- Accounting for...

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Acc 312 Chapter 9- Accounting for Inventories Inventory Classification and Systems Classification -inventories are asset items that a co holds for sale in the ordinary course of business, or goods that it will use or consume in the production of goods to be sold -a merchandising concern such as Wal-Mart usually purchases its merchandise in a form ready for sale and it reports the cost assigned to unsold units left on hand as merchandise inventory -a manufacturing concern produces goods to sell to the merchandising firms *have three inventory accounts: 1. raw materials inventory- cost assigned to goods and materials on hand but not yet placed into production ~materials traced directly to the end product 2. work in process inventory- some units are only partially processed ~ the cost of the raw material for these unfinished units plus the direct labor cost applied specifically to this material and a ratable share of manufacturing overhead costs constitute WIP 3. finished gods inventory- ~costs identified with the completed but unsold units on hand at the end of the fiscal period as finished goods Inventory Systems 1. perpetual system- continuously tracks changes in the inventory account- a co records all purchases and sales (issues) of goods directly in the inventory account as they occur a. debit purchases of merchandise for resale or raw materials for production to inventory rather than to purchases b. record freight-in, purchase returns and allowances, and purchase dscts in inventory rather than in separate accounts c. recognize cost of goods sold for each sale by debiting cost of goods sold and crediting inventory d. maintain a subsidiary ledger of individual inventory records as a control measure- the subsidiary records show the quantity and cost of each type of inventory on hand 2. Periodic system- company only periodically determines the quantity of inventory on hand a. records all acquisitions of inventory by debiting the purchase acct b. then adds the total in the purchases acct at the end of the pd to the cost of the inventory on hand at the beginning of the period, which determines the total cost of goods sold avail for sale during the period c. to compute the cost of goods sold, the co subtracts the ending inventory from the cost of goods avail for sale d. the cost of goods sold is a residual amt that depends on a physically counted ending inventory -all companies face danger of loss: waste, spoilage etc, thus all companies need periodic verification of the inventory records by actual count, weight or measurement- compare the counts with the detailed inventory records and corrects the records to agree with quantities actually on hand 1
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Transaction: Perpetual Periodic Beginning inventory, 100 units at $6: Inventory acct shows inventory on hand at $600 Inventory account shows inventory on hand at $600 Purchase 900 units at $6 Inventory 5400 A/P 5400 Purchases 5400 A/P 5400 Sale of 600 unites at $12 A/R 7200 Sales 7200 COGS 3600 Inventory 3600
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Accounting 312- ch 9 - Acc 312 Chapter 9- Accounting for...

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