LN08-ch8-AFM101s10

LN08-ch8-AFM101s10 - Chapter 8 Reporting and Interpreting...

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Financial Accounting, Third Canadian Edition 8-1 Chapter 8 Reporting and Interpreting Cost of Goods Sold and Inventory
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Financial Accounting, Third Canadian Edition 8-2 Provides accurate information Provides up-to-date information Provides information to help protect assets Roles of the Accounting System Understanding the Business Provide sufficient Provide sufficient quantities of high- quantities of high- quality inventory. quality inventory. Minimize the costs of Minimize the costs of carrying inventory. carrying inventory. Primary Goals of Inventory Management
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Financial Accounting, Third Canadian Edition 8-3 Items Included in Inventory Inventory tangible property held for sale in the normal course of business or used in producing goods or services for sale Tangible Property Held for Sale Used to Produce Goods or Services Merchandise Inventory Raw Materials Inventory Work in Process Inventory Finished Goods Inventory
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Financial Accounting, Third Canadian Edition 8-4 Costs Included in Inventory Purchases The cost principle cost principle requires that inventory be recorded at the price paid or the consideration given. Include all costs all costs incurred to bring the asset to useable or saleable condition. Invoice Price Freight Inspection Costs Preparation Costs
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Financial Accounting, Third Canadian Edition 8-5 Flow of Inventory Costs Merchandise Merchandise Purchases Purchases Cost of Cost of Goods Sold Goods Sold (in the I/S) (in the I/S) Merchandise Merchandise Inventory Inventory (in the B/S) (in the B/S) Merchandiser Raw Raw Materials Materials Raw Materials Raw Materials Inventory Inventory Work in Process Inventory Inventory Finished Goods Finished Goods Inventory Inventory Cost of Cost of Goods Sold Goods Sold Manufacturer Direct Direct Labour Labour Factory Factory Overhead Overhead
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Financial Accounting, Third Canadian Edition 8-6 Nature of Cost of Goods Sold Beginning Beginning Inventory Inventory Purchases Purchases for the Period for the Period Ending Inventory Ending Inventory (Balance Sheet) (Balance Sheet) Goods available Goods available for Sale for Sale Cost of Goods Sold Cost of Goods Sold (Income Statement) (Income Statement) Beginning inventory + Purchases = Goods Available for Sale Beginning inventory + Purchases = Goods Available for Sale Goods Available for Sale – Ending inventory = Cost of goods sold Goods Available for Sale – Ending inventory = Cost of goods sold
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Financial Accounting, Third Canadian Edition 8-7 Internal Control of Inventory Separation of inventory accounting and physical handling of inventory. Storage in a manner that protects from theft and damage. Limiting access to authorized employees. Maintaining perpetual inventory records. Comparing perpetual records to periodic physical counts.
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Financial Accounting, Third Canadian Edition 8-8 Perpetual and Periodic Inventory Systems Provides Provides up-to-date up-to-date inventory records.
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This note was uploaded on 06/17/2011 for the course AFM 101 taught by Professor Kennedy during the Spring '08 term at Waterloo.

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LN08-ch8-AFM101s10 - Chapter 8 Reporting and Interpreting...

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