18 Inventory_Measurement - 18 CostFlowAssumptions Accountancy301 Spring2011 FloraZhou Todaysagenda Today Productvs.periodcosts .periodicinventory systems

18 Inventory_Measurement - 18 CostFlowAssumptions...

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Retail Inventories and  Retail Inventories and  Cost Flow Assumptions Cost Flow Assumptions Accountancy 301 Spring 2011 Flora Zhou 18
Today Today ’s agenda ’s agenda • Product vs. period costs • How are physical quantities in inventory  determined– perpetual vs. periodic inventory  systems • How to allocate goods available for sale between  COGS and Ending inventory--Cost flow  assumptions – FIFO  – LIFO – Average cost • LIFO reserve, LIFO liquidation, and LIFO  conformity
Product vs. period costs Product vs. period costs • Product costs – Costs involved in making (acquiring) a product • Direct materials • Direct labour • Manufacturing overhead – Assigned to inventories and considered  assets  until sold • Period costs – All other costs (e.g. Selling costs, Administration costs) – Taken directly to income statement as  expenses
Cost of goods sold – retail  Cost of goods sold – retail  companies companies Inventory Purchases Cost of  Goods Sold Expense (Income Statement) Asset (Balance Sheet) Sales
Cost of goods sold - manufacturer Cost of goods sold - manufacturer RM  Inventory WIP  Inventory FG  Inventory Purchases Requisitions Overhead Direct Labor Cost of  Goods  Sold Sales Assets (Balance Sheet) Expense (Income  Statement )
 Which of the following transactions would immediately result in an expense? Wake-Up Question      Wake-Up Question 
Determining inventory quantities Determining inventory quantities • There are two inventory systems Periodic  inventory system updates inventory  records only periodically Perpetual  inventory system maintains a  continuous record of inventory changes • We will focus primarily on periodic  inventory system
Determining inventory quantities: Determining inventory quantities: Perpetual inventory system Perpetual inventory system This approach keeps a running (or “perpetual”)  record of the amount of inventory on hand.

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