Chapter 6 Notes

Chapter 6 Notes - Chapter 6 Notes Inventory Concepts o...

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Chapter 6 Notes Inventory Concepts o Inventory is property held for sale (or converted into products for sale) in the normal course of business o Manufacturing firms have Raw Materials Inventory Work in Process Inventory Finished Goods Inventory o Difference industries have different kinds of inventory o Firms try to optimize levels of inventory o Reasons to hold inventory: Meet expected demand Speculative (ex. Price increase) Production smoothing Overproduction to lower per-unit cost o Costs of holding inventory: Risk of obsolescence Risk of theft or damage Holding costs (storage) Cost Principle o Acquired assets and services should be recorded at their actual (historical) cost o That cost should maintain that historical cost for as long as they are owned o Inventory costs include: Purchase price, shipping cost, insurance in transit, production cost COGS Cost of Goods Sold When you deliver service, there is 1 journal entry When you deliver a product. 2 journal entries
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