C07 - 1 Chapter 7 Inventories: Cost Inventories:...

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1 Inventories: Cost Inventories: Cost Measurement and Measurement and Flow Assumptions Flow Assumptions C hapter 7 An electronic presentation by Douglas Cloud Pepperdine University
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2 1. Describe how inventory accounts are classified. 2. Explain the uses of perpetual and periodic inventory systems. 3. Identify how inventory quantities are determined. 4. Determine the cost of inventory. 5. Compute ending inventory and cost of goods sold under specific identification, FIFO, average cost, and LIFO. Objectives Continued Continued
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3 6. Explain the conceptual issues regarding alternative inventory cost flow assumptions. 7. Understand dollar-value LIFO. 8. Explain additional LIFO issues. 9. Understand inventory disclosures. 10. Record foreign currency transactions involving inventory (Appendix). Objectives
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4 Flow of Inventory Costs Merchandising Company Cost of Goods Sold Accounts Payable (or Cash) Merchandise Inventory Goods Purchased Goods Sold
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5 Flow of Inventory Costs Manufacturing Company Accounts Payable (or Cash) Raw Materials Inventory Materials Purchased Materials Used in Production To Goods in Process Inventory Continued Continued
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6 Flow of Inventory Costs Manufacturing Company Direct Labor Actual Direct Labor Manufacturing (Factory) Overhead Actual Mfg. Over- head Overhead Applied to Production To Goods in Process Inventory Labor Charged to Production To Goods in Process Inventory Continued Continued
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7 Flow of Inventory Costs Manufacturing Company Goods in Process Inventory Materials Used Direct Labor Overhead Applied Finished Goods Inventory Goods Finished (Manufactured) Goods Sold to Cost of Goods Sold
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8 Alternative Inventory Systems A company using a perpetual system maintains a continuous record of the physical quantities in its inventory.
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9 Alternative Inventory Systems A company using a periodic system does not maintains a continuous record of the physical quantities on hand.
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10 Purchases + Freight-in - Purchases Returns and Allowances - Purchases Discounts Taken = Net Purchases Computation of Net Purchases
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11 Beginning inventory + Purchases (net) - Goods Sold = Ending Inventory Comparison of Systems Perpetual Inventory System Beginning inventory + Purchases (net) - Ending Inventory = Goods Sold Periodic Inventory System
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12 FOB Shipping Point Fruit Express Goods being shipped included in inventory of buyer.
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13 FOB Destination Fruit Express Goods being shipped included in inventory of seller.
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14 Determination of Inventory Costs Price paid or consideration given Freight-in Receiving Unpacking Inspecting Storage Insurance Sales and other applicable taxes
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15 Purchases Discounts Under the gross price method , a company records the purchase at the gross price, and records the amount of the discount in the accounting system only if the discount is taken .
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C07 - 1 Chapter 7 Inventories: Cost Inventories:...

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