Chapter 6s

Chapter 6s - Chapter 6 Inventories and Cost of Sales 1...

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1 Inventories and Cost of Sales Chapter 6
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2 Learning Objectives Measure and control inventory in a company Analyze the effects of different inventory flow assumptions on the financial statements Assess inventory management
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3 Accounting for inventory Accounting for inventory requires several decisions . . . Items included in inventory and their costs Costing Method Specific Identification, FIFO, LIFO, or Weighted Average Revaluation of ending inventory
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4 Determining Inventory Items Merchandise inventory includes all goods that a company owns and holds for sale, regardless of where the goods are located when inventory is counted. Items requiring special attention include: Goods in Transit Goods Damaged or Obsolete Goods on Consignment
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5 FOB Destination Point Public Carrier Seller Buyer Goods in Transit Public Carrier Seller Buyer FOB Shipping Point Ownership passes to the buyer here.
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6 Goods on Consignment Merchandise is included in the inventory of the consignor , the owner of the inventory. Consignor Consignee Thanks for selling my inventory in your store.
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7 Goods Damaged or Obsolete Damaged or obsolete goods should not be counted in inventory.
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8 Inventory Cost Flow Assumptions First-In, First-Out (FIFO) Assumes costs flow in the order incurred. Last-In, First-Out (LIFO) Assumes costs flow in the reverse order incurred. Weighted Average Assumes costs flow at an average of the costs available.
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9 Frequency in Use of Inventory Methods in the US Exh. 6.1
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10 The LIFO method is not allowed under IFRS 2
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11 Inventory Cost Flow Assumptions: Specific Identification Specifically identify the cost of each unit sold and in ending inventory. To compute COGS and ending inventory, a firm must know the cost of each unit sold and in ending inventory.
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12 Inventory Costing Illustration
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13 Specific Identification When units are sold, the specific cost of the unit sold is added to cost of goods sold .
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14 Specific Identification The above purchases were made by Trekking in August. On August 14, Trekking sold 8 bikes originally costing $91 and 12 bikes originally costing $106.
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The Cost of Goods Sold for the August 14 sale is $2,000. After this sale, there are 5 units in
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Chapter 6s - Chapter 6 Inventories and Cost of Sales 1...

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