C1 Chapter 06

C1 Chapter 06 - 6-1Chapter 6 Inventories and Cost of Goods...

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Unformatted text preview: 6-1Chapter 6 Inventories and Cost of Goods SoldFinancial Accounting 1stCanadian ed. by PNCS-B6-2Inventory Systems - PeriodicReduces record-keeping but also decreases ability to track theft, breakage, etc. and prepare interim financial statementsInventory records are updated periodicallyInventory is based on physical inventory countsCGS = Inventory (B) + Purchase Inventory (E)6-3Inventory Systems - PerpetualPoint of sale terminals have improved ability of mass merchandisers to maintain perpetual systemsInventory records are updated after each purchase or saleInventory and CGS account balances are up to date6-4Cost of Goods PurchasedIncludes invoice price:Less:Purchase returns and allowancesPurchase discountsPlus:Transportation-in 6-5Comparison of Periodic and Perpetual Inventory SystemsPeriodic:Perpetual:Purchased on account 500 units at $8 each.Purchases4,000Accounts Payable4,000Inventory4,000Accounts Payable4,0006-6Comparison of Periodic and Perpetual Inventory SystemsPeriodic:Perpetual:Returned for credit 100 units damaged in transit.Accounts Payable800Purchase Returns & Allowances800Accounts Payable800Inventory8006-7Comparison of Periodic and Perpetual Inventory SystemsPeriodic:Perpetual:Sold on account 200 units at $10 each.Accounts Receivable2,000Sales Revenue2,000Accounts Receivable2,000Sales Revenue2,000Cost of Goods Sold1,600Inventory1,6006-8Shipping TermsWhen does the title of inventory change hands?Who is responsible for inventory while in transit?SellerBuyer6-9CIF Destination PointNo sale or purchase until inventory reaches its destinationSeller responsible for inventory while in transitSellerBuyerTitlePasses atDestination6-10FOB Shipping PointBoth sale and purchase recorded upon shipmentBuyer responsible for inventory while in transitSellerBuyerTitlePasses whenShipped6-11Inventory costs includeAny freight costs incurred by buyerCost of insurance for inventory in transitCost of storing inventory before sellingDuty taxes6-12Inventory Valuation and Income MeasurementValue Assigned toInventory on BalanceSheetValueExpensedas Cost of Goods Soldon IncomeStatementWhen Sold =6-13...
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C1 Chapter 06 - 6-1Chapter 6 Inventories and Cost of Goods...

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