ACCT3111-Inventory1

ACCT3111-Inventory1 - Chapter 8 Cost Measurement and Flow...

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Chapter 8 Cost Measurement and Flow Assumptions I. Concepts--Inventory and Cost of Goods Sold: a. What is Inventory? b. What Costs are Included in Inventory Cost? Purchase discount c. Perpetual vs periodic d. Ending Inventory and Cost of Goods Sold II. Four Inventory Cost Flow Assumptions a. Specific Identification Inventory Cost Flow b. First In First Out (FIFO) Cost Flow Assumption c. Last In First Out (LIFO) Cost Flow Assumption d. Average Cost Flow Assumption . III. Conceptual Evaluation of Inventory Cost Flow Assumption a. Comparison among LIFO, Average Cost and FIFO b. on FIFO c. on LIFO d. Earnings Managements IV. Dollar-Value LIFO a. Problems associated with simple LIFO b. How to solve the problem? Dollar Value-LIFO c. Calculation steps d. Decipher—How and why it works e. Cost Index and Inventory Pools 1
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I. Concepts: Inventory and Cost of Goods Sold a. What is Inventory?-Defined according to type and nature of the company Merchandising: Items to be resold. Manufacturing: o Raw Materials-Goods acquired in a relatively undeveloped state o Work In Process-Partly finished products o Finished Goods-Completed products waiting for sale b. What Costs are Included in Inventory Cost? (manufacturing) Raw Materials Work In Process Finished Goods Example: Purchase discount Gross price Net Price 2
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c. Inventory System 1) Perpetual System-Continuous System Records are updated whenever a purchase or sale is made Records reflects total items in inventory or sold at any given time Most often used when o Each item has a relatively high value o The cost or running out of or overstocking is expensive 2) Periodic System-Discrete System Records are not updated when a purchase or sale is made-updated at the end of an accounting period Only the dollar amount (instead of unit amount) of the sale is recorded Most often used when o Inventory is composed of a large number of diverse items o Each with a relatively low value d. Ending Inventory and Cost of Goods Sold Inventory is reported on B/S as an asset. When sold, inventory is reported on income statement as an expense-cost of goods sold (COG) Ending Inventory and COG o Net Purchases =Purchases +Freight-in-Purchase Returns and Allowance- Purchases discounts taken o Costs of Goods Available for Sale
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This note was uploaded on 09/29/2011 for the course ACCT 3111 taught by Professor Zhang during the Spring '11 term at CUHK.

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ACCT3111-Inventory1 - Chapter 8 Cost Measurement and Flow...

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