ch6A(1)

ch6A(1) - PREVIEW OF CHAPTER 6 INVENTORIES Periodic...

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INVENTORIES PREVIEW OF CHAPTER 6 Inventory Basics Classifications Determining inventory quantities Inventory accounting systems Periodic Inventory Systems Recording transactions Cost of goods sold Cost of goods purchased Income statement presentation Inventory Costing Actual inventory costs Assumed inventory costs Financial statement effects Consistent use
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INVENTORIES PREVIEW OF CHAPTER 6 Lower of Cost or Market Inventory Errors Income statement effects Balance sheet effects
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In the balance sheet of merchandising and manufacturing companies, inventory is often the most significant current asset. In the income statement , inventory is vital in determining the results of operations for a particular period. Gross profit (net sales - cost of goods sold) is closely watched by management, owners, and other interested parties. INVENTORY BASICS
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Merchandise inventory has two common characteristics: 1 it is owned by the company and 2 it is in a form ready for sale to customers in the ordinary course of business MERCHANDISE INVENTORY CHARACTERISTICS
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Unlike merchandise inventory, manufacturing inventory may not yet be ready for sale. Manufacturing inventory is usually classified into three categories: 1 Finished goods , inventory which is completed and ready for sale. 2 Work in process , i nventory in various stages of production and not yet completed. 3 Raw materials , co mponents on hand waiting to be used in production. CLASSIFYING INVENTORY IN A MANUFACTURING ENVIRONMENT
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In order to prepare financial statements, we need to determine the number of units of inventory owned by the company at the statement date, and to value them. The determination of inventory quantities involves 1 taking a physical inventory of goods on hand 2 determining the ownership of goods. Taking a physical inventory involves counting, weighing or measuring each kind of inventory on hand. DETERMINING INVENTORY QUANTITIES
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TAKING A PHYSICAL INVENTORY A company, in order to minimize errors in taking the inventory, should adhere to internal control principles by adopting the following procedures: 1 Employees who do not have custodial responsibility for the inventory should do the counting. 2 E ach counter should establish the authenticity of each inventory item.
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TAKING A PHYSICAL INVENTORY 3 Another employee should make asecond count. 4
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ch6A(1) - PREVIEW OF CHAPTER 6 INVENTORIES Periodic...

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