AgendanCost flow and cost of goods soldnHow to track costs?nPhysical flow vs. money flownPeriodic inventory systemsnFIFO and LIFOnIn-class practice problemnFIFO vs. LIFO comparisonnLIFO reservenDollar value LIFOnIn class practice problemnLower of cost or marketnPerpetual inventory systems
DirectMaterialMfg. OverheadRaw Materials InventoryWork in Process(Job Cost Sheet)IndirectMaterialMaterialPurchaseIndirectMaterialDirectMaterialCost Flows (1)
DirectLaborMfg. OverheadSalaries and Wages Cost (Expense)Work in Process(Job Cost Sheet)Overheadto WIPIndirectLaborDirectLaborOverheadAppliedIndirectLaborTotalfactorylaborIndirectMaterialDirectMaterialCost Flows (2)Any balance?
Finished GoodsCost ofgoods sold Income StatementCost ofgoods sold Work in Process(Job Cost Sheet)DirectMaterialsDirectLaborOverheadAppliedCost of goods manufacturedCost of goods manufacturedCost Flows (3)
Finished GoodsCost ofgoods sold Income StatementCost ofgoods sold Work in ProcessDirectMaterialsDirectLabourOverheadAppliedCost of goods manufacturedCost of goods manufacturedCost Flows (4)Opening BalanceEnding BalanceOpening BalanceEnding Balance
Physical Flow vs. Money FlowCompanies purchase, manufacture, and sell constantly.nHow do companies deal with the cost flows?
Periodic Inventory SystemqInventory balances at beginning of year is last year’s ending balance.qWhen goods are bought you use the purchases account to record them. qWhen inventory is sold you record the event (revenue and AR). qYou count the inventory and update it at the year end. qCost of goods sold is only recorded at year end.qYou calculate the cost of goods sold as in cost flow (4)
nJournal entries:To buy:PurchasesXXA/PXX** Assumes the gross approach is takenTo return:A/PXXPurchase Returns and AllowancesXXPeriodic Inventory System
To sell:A/RXXSalesXXYear end adjusting entries:CGS XXBeginning inventoryXXCGS XXPurchaseXXEnding inventoryXXCGS XXPeriodic Inventory System