Chapter6StudyObjectives - 1 Describe the steps in...

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Unformatted text preview: 1 Describe the steps in determining inventory quantities. The steps are (1) take a physical inventory of goods on hand and (2) determine the ownership of goods in transit or on consignment. 2 Explain the accounting for inventories and apply the inventory cost flow methods. The primary basis of accounting for inventories is cost. Cost of goods available for sale includes (a) cost of beginning inventory and (b) cost of goods purchased. The inventory cost flow methods are: specific identification and three assumed cost flow methodsFIFO, LIFO, and average-cost. 3 Explain the financial effects of the inventory cost flow assumptions. Companies may allocate the cost of goods available for sale to cost of goods sold and ending inventory by specific identification or by a method based on an assumed cost flow. When prices are rising, the first-in, first-out (FIFO) method results in lower cost of goods sold and higher net income than the other methods. The reverse is true when prices are cost of goods sold and higher net income than the other methods....
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