13_Inventory

13_Inventory - Last Class Bad debt expense allowance method...

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Last Class Bad debt expense allowance method gets A/R, net to net realizable value Management Judgment!!! Earnings Quality! Lecture 10
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Inventory Vignette Growth by Acquisition Latte Co. Frapchino Co. Revenue 5,698,442 5,687,045 Cost of Goods Sold 3,134,143 3,014,134 Gross Margin 2,564,299 2,672,911 S, G & A 854,766 853,057 Pre-tax Income 1,709,533 1,819,854 Taxes 683,813 727,942 Net Income 1,025,720 1,091,913 Current Assets 3,516,538 3,663,061 PP&E 444,965 432,781 Total Assets 3,961,503 4,095,842
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Lecture 10 Objectives To understand inventory accounting and in particular the impact of firms choosing a different accounting method Learn how to convert LIFO statements to FIFO – facilitate
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Lecture 10 Agenda 1. Inventory Equation 2. Inventory Costs – Product vs. Period 3. Measuring Cost Flows – The alternatives 4. Timing of Measurement Periodic vs. Perpetual 5. Inventory Valuation – Lower of Cost or Market; Allowances 6. Lifo Liquidation 7. Footnote Disclosures 8. Converting: Lifo to Fifo
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Lecture 10 Inventory Inventory: Goods held by firm for resale or for further processing into goods that will be sold Inventory is a significant item on many balance sheets, and a related income statement item is cost of goods sold (COGS) EI = BI + P - COGS BI = Beginning Inventory P = Purchases EI = Ending Inventory Inventory Beginning Purchases Ending COGS
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Lecture 10
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Inventory Which costs are included in inventory balance? Manufacturing firms include raw materials, direct labor, and manufacturing overhead ( Product Costs ) If overhead activities cannot be tied to production, they are assigned to SG&A or another expense line on the income statement ( Period Costs ) Non-Manufacturer -All costs related to acquisition Lecture 10
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Inventory – What’s the Issue? Beginning Inventory + Purchases =Goods Available for Sale How do you split -Goods Available for Sale into CoGs (I/S) and Ending Inventory (B/S)? Lecture 10
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Lecture 10 Beginning Inventory Purchases Or Cost of Goods Manufactured Cost of Goods Available for Sale Ending Inventory (Balance Sheet) Cost of Goods Sold (Income Statement)
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Why does it matter? The allocation choice – or accounting method – can lead to significantly different financial statements!
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This note was uploaded on 10/17/2011 for the course MGMT 600 taught by Professor Johnston during the Spring '11 term at Purdue.

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13_Inventory - Last Class Bad debt expense allowance method...

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