Inventory - INVENTORY 3 major types of businesses 1 service(e.g accounting consulting or law firm 2 manufacturing(e.g auto manufacturer 3

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1 INVENTORY 3 major types of businesses— 1. service (e.g. accounting, consulting or law firm), 2. manufacturing (e.g. auto manufacturer) & 3. merchandising (e.g. department or grocery store) Merchandising business—same accounting issues as a service firm, plus accounting for purchase and sale of inventory; Manufacturing business—same accounting issues as a service firm, plus accounting for purchase of raw materials, accounting for production of finished goods from raw materials, and sale of those finished goods. Manufacturing firm has 3 classes of inventory: 1. Raw materials—materials purchased that will go into production of the finished product 2. Work in Process—goods in the production phase, not yet finished 3. Finished goods—completed products waiting to be sold. • Accounting for manufacturing firms is typically covered in management accounting courses Inventory is typically largest cost of a merchandising business (in service business, wages are often largest cost of business) Company purchase s goods from manufacturer or wholesaler ֜ Inventory —an asset on the Balance Sheet; company is legal owner of the goods at this point Company sells inventory to customer (customer becomes legal owner) ֜ Expense on Income Statement known as Cost of Goods Sold (key expense of merchandising company) Additional Accounts for Merchandising Companies: Balance Sheet Inventory—goods purchased for resale; still owned by the company as of the Balance Sheet date—always a current asset Income Statement Sales—total sales (in $) for period Sales Returns & Allowances—directly offsets Sales (contra-revenue account to Sales) Returns—sales price of goods returned by customer
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This note was uploaded on 02/03/2011 for the course MGA 201 taught by Professor Anderson during the Fall '08 term at SUNY Buffalo.

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Inventory - INVENTORY 3 major types of businesses 1 service(e.g accounting consulting or law firm 2 manufacturing(e.g auto manufacturer 3

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