Chapter6Outline - CHAPTER REVIEW Classifying Inventory 1....

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CHAPTER REVIEW Classifying Inventory 1. (S.O. 1) Merchandise inventory has two common characteristics: (a) it is owned by the com- pany and (b) it is in a form ready for sale in the ordinary course of business. 2. A manufacturer's inventory is usually classified into three categories: a. Finished goods that are completed and ready for sale. b. Work in process that is in various stages of production but not yet completed. c. Raw materials that are on hand waiting to be used in production. Determination of Inventory Quantities 3. The determination of inventory quantities involves (a) taking a physical inventory of goods on hand and (b) determining the ownership of goods. 4. Taking a physical inventory involves counting, weighing or measuring each kind of inventory on hand. Internal control procedures should be followed in taking the inventory in order to minimize errors. 5. For goods in transit, legal title is determined by the terms of sale. When the terms are: a. FOB (free on board) shipping point, ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller. b. FOB destination, legal title to the goods remains with the seller until the goods reach the buyer. 6. Under a consignment arrangement, the holder of the goods (called the consignee) does not own the goods. Ownership remains with the shipper of the goods (consignor) until the goods are actu- ally sold to a customer. Consigned goods should be included in the consignor's inventory not the consignee's inventory. Inventory Costing 7. (S.O. 2) Inventoriable costs may be regarded as a pool of costs that consist of two elements: (a) the cost of the beginning inventory and (b) the cost of the goods purchased during the year. a.
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This note was uploaded on 07/18/2011 for the course ACCT 50 taught by Professor Lee during the Spring '11 term at UCLA.

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Chapter6Outline - CHAPTER REVIEW Classifying Inventory 1....

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