ch08s - Chapter8 ValuationofInventories: ACostBasisApproach

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Chapter 8 Valuation of Inventories:  A Cost-Basis Approach
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Basic Inventory Concepts: Manufacturing and Merchandising Cost Flows Inventory Valuation Issues Goods to Include in Inventory Costs to Include in Inventory Cost flow assumptions Special Issues Related to LIFO LIFO Reserve; LIFO Liquidations; Dollar Value LIFO Financial Statement Effects of Inventory Errors. Accounting 301A- 2 Chapter 8: Key Concepts
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Definition : Assets held for sale or for use in the  production of assets to be sold in the ordinary course of  business. Finished goods held for sale in the ordinary course of  business. Goods held or consumed in the production of finished  goods. Raw Materials Work in Process Accounting 301A- 3 Inventory
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Accounting 301A- 4 Inventory Cost Flows:  Merchandising Companies Cost of goods sold $$$ Merchandise  Inventory Purchases COGS
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Accounting 301A- 5 Inventory Cost Flows:  Manufacturing Companies
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Importance of inventory planning & control: 1. Ensuring availability of inventory items. 2. Preventing waste, spoilage, or theft. 3. Preventing excessive accumulation of  inventory items. The perpetual  system maintains a continuous record  of inventory changes. The periodic  system updates inventory records only  periodically. Accounting 301A- 6 Inventory Control
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Physical goods to be included. Which Items? Costs to be included in inventory. Which Costs? Cost flow assumption used. Which Cost Flow Assumption? LIFO, FIFO, Weighted Average, Specific ID, etc. Accounting 301A- 7 Inventory Valuation Issues
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If Buyer, Goods in Transit if FOB              . What if Seller? Inventory on Consignment if Consignor. Special Issues - Include in inventory if: Inventory has been sold, but an agreement exists to  buy it back (i.e. Sales w/ Buyback) Also book a liability. Inventory has been sold, but right to return exists and  amount cannot be predicted. Goods sold on installment if percent of bad debts  cannot be estimated. Accounting 301A- 8 Which Items should be Included  in Inventory?
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Product costs : Necessary expenditures to  acquire inventory and bring it to its desired  condition and location for sale (or use in the  manufacturing process).
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This note was uploaded on 11/08/2011 for the course ECON 102 taught by Professor Smith during the Spring '11 term at Saddleback.

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ch08s - Chapter8 ValuationofInventories: ACostBasisApproach

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