Chemalite

Chemalite - Chemalite Page 2-27 1 Inventory an introduction...

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1 Chemalite Page 2-27
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2 Inventory – an introduction Unsold inventory is an asset. Value = Production cost for a manufacturer Purchase cost for a merchandiser (wholesaler or retailer) NOT projected selling price Concepts: Cost, Conservatism At time of sale: Asset (inventory) becomes expense (Cost of Goods Sold) Example: Start a company; invest $100 cash Purchase inventory for $100 Sell 60 percent of inventory for $80 Financial Statements Balance Sheet: Cash, $80 Inventory, $40 Income Statement: Sales, $80 Cost of Goods Sold (expense), $60 Gross Margin or Gross Profit, $20
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3 Example: Start a company; invest $100 cash Purchase inventory for $100 Sell 60 percent of inventory for $80 Financial Statements Balance Sheet: Cash, $80 Inventory, $40 Owners’ Equity, $120 Transaction Assets Liabilities OE 1 +100 100 Invest 100 cash 2 (100) Purchase Inventory for cash + 100 3a +80 80 Sale and receipt of cash 3b (60) (60) Cost of Goods Sold (expense) and shipment of inventory 120 120 Assets: Cash 80 $ Inventory 40 120 $ Owners' Equity: Contributed Capital 100 $ Retained Earnings 20 120 $ Our Company Balance Sheet As of March 31, 2009
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4 Transaction Assets Liabilities OE 1 +100 100 Invest 100 cash 2 (100) Purchase Inventory for cash + 100 3a +80 80 Sale and receipt of cash 3b (60) (60) Cost of Goods Sold (expense) and shipment of inventory 120 120 Our Company Income Statement For the Quarter Ended 3/31/09 Sales Revenue $ 80 Less: Cost of Goods Sold 60 Net Income $ 20
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5 Statement of Cash Flows (direct and indirect methods) Operating Cash Flows: Cash Receipts 80 $ Purchase of Inventory (100) (20) Investing Cash Flows: - Financing Cash Flows Owner Contribution 100 Net Change in Cash 80 Cash Balance, 1/1/09 - Cash Balance, 3/31/09 80 $ Our Company Statement of Cash Flows For the Quarter Ended 3/31/09 Operating Cash Flows: Net Income 20 $ Adjustment to net income: Increase in inventory (40) (20) Investing Cash Flows: - Financing Cash Flows Owner Contribution 100 Net Change in Cash 80 Cash Balance, 1/1/09 - Cash Balance, 3/31/09 80 $ Our Company Statement of Cash Flows For the Quarter Ended 3/31/09
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6 Summary of (3) financial statements Assets: Cash 80 $ Inventory 40 120 $ Owners' Equity: Contributed Capital 100 $ Retained Earnings 20
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Chemalite - Chemalite Page 2-27 1 Inventory an introduction...

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