Chapter_6 - Chapter 6 Inventory Internal Control Inventory...

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Chapter 6 Inventory Internal Control Inventory is merchandise held for resale, or materials held for production. In production there are several inventories accounts, typically; raw materials inventory, work in process inventory, and finished goods inventory. A subsidiary inventory ledger keeps track of each type of merchandise. Just in Time inventory lowers inventory by having goods delivered as they are needed to where they are needed. JIT is vulnerable to interruptions of the source of supply. Matching Concept The AICPA states, “A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenue.” The objective says nothing about a realistic inventory value. The Cost of Inventory The cost of inventory is: (1)The purchase price less discounts (2)freight in (3)taxes and tariffs Depending on FOB terms, goods in transit may or may not be inventory. Some goods on hand are not in inventory. Goods that have been sold and goods held on consignment are not part of our inventory. A review of FOB terms: FOB shipping point: the goods change hands at the seller’s place of business. The buyer owns the goods while they are in transit. FOB destination: the goods change hands at the buyer’s place of business. The seller owns the goods while they are in transit. Cost Flow
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Chapter_6 - Chapter 6 Inventory Internal Control Inventory...

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