Session 6 - ACC 500: Intro to Financial Acctg Meeting #6:...

Info iconThis preview shows pages 1–13. Sign up to view the full content.

View Full Document Right Arrow Icon
ACC 500: Intro to Financial Acctg Meeting #6: Accounting for Assets 1 – Inventory Accounting and Costs of Goods Sold Professor Ryan Casey College of Business Administration University of Illinois at Chicago
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Outline of Meeting #6 General Inventory Management decisions and objectives Types of inventory, costs and flows Cost Flow Methods LIFO vs FIFO calculations F/S impact and disclosures Cases: Kraft, GE, Walgreens, Amazon and General Mills
Background image of page 2
Key Questions in Inventory Accounting Main question: How should we determine costs of products/services? First need to answer: What costs should be included in the production process (e.g, what labor and capital)? How should these costs be measured? How should the costs be included in the determination of income?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Basic Reporting Issues for Inventory Link costs to revenues as expenses in the same period Use information to value firm and evaluate management and the business So key questions are what costs to use (as discussed, product costs)? whether to record as expense now in the future? what to disclose about the costs?
Background image of page 4
First, some basics Ask yourself, what is the inventory ? Ford Merck Bank of Tokyo Verizon What are the critical questions we ask before acquiring and processing inventory?
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Cost Flows for Breakfast Cereal Production Order Raw materials Work in Process grain sugar packaging machines factory workers Finished Goods Supermarket
Background image of page 6
Transaction Equation for Inventory B eg. Balance A dditions S ubtractions E nd. Balance Beg. Inventory Cost of Product Cost of Goods Sold End. Inventory
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Types of Inventoriable Costs Only product costs, not period costs, included inventory. In U.S. all product cost, both variable and fixed, included in inventory; this is called full or absorption costing. Some countries (e.g. Canada), include only variable cost; this is called variable costing.
Background image of page 8
International Inventory Accounting All major countries use Lower of Cost or Market method Only the U.S. and Japan allow LIFO Creates a difficulty in comparing U.S. firms that mainly use LIFO to international firms that use FIFO or Weighted Average
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Inventory: Purpose, Costs and Types Purpose: To value goods held for sale or processing before being sold. Costs: Materials, assemblies, labor, overhead, etc. Categories: Raw Materials Work in Process Finished Goods
Background image of page 10
Understanding the Flows: Manufacturing Firm Merchandising Firm: The cost of goods sold (COGS) expense = cost of products acquired, as in previous discussion. Manufacturing firm: COGS includes flow of goods all the way from raw materials to the finished product. To get COGS, we must measure the cost of goods manufactured , or the sum of all costs allocated to products completed during the period, including materials, labor and overhead.
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Understanding the Flows: Details of Mfg Firm Firms use a variety of accounts to collect the inventory and services that are used in the manufacturing process (raw materials, overhead, direct labor). As these items are used to manufacture
Background image of page 12
Image of page 13
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 38

Session 6 - ACC 500: Intro to Financial Acctg Meeting #6:...

This preview shows document pages 1 - 13. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online