day 8 inventory 2009 spring v2 - MeasurementofInventory...

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Measurement of Inventory Dr. James Gong
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Agenda n Cost flow and cost of goods sold n How to track costs? n Physical flow vs. money flow n Periodic inventory systems n FIFO and LIFO n In-class practice problem n FIFO vs. LIFO comparison n LIFO reserve n Dollar value LIFO n In class practice problem n Lower of cost or market n Perpetual inventory systems
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Direct Material Mfg. Overhead Raw Materials Inventory Work in Process (Job Cost Sheet ) Indirect Material Material Purchase Indirect Material Direct Material Cost Flows (1)
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Direct Labor Mfg. Overhead Salaries and Wages Cost (Expense ) Work in Process (Job Cost Sheet) Overhead to WIP Indirect Labor Direct Labor Overhead Applied Indirect Labor Total factory labor Indirect Material Direct Material Cost Flows (2) Any balance?
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Finished Goods Cost of goods sold Income Statement Cost of goods sold Work in Process (Job Cost Sheet) Direct Materials Direct Labor Overhead Applied Cost of goods manufactured Cost of goods manufactured Cost Flows (3)
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Finished Goods Cost of goods sold Income Statement Cost of goods sold Work in Process Direct Materials Direct Labour Overhead Applied Cost of goods manufactured Cost of goods manufactured Cost Flows (4) Opening Balance Ending Balance Opening Balance Ending Balance
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Physical Flow vs. Money Flow Companies purchase, manufacture, and sell  constantly. n How do companies deal with the cost flows? n Periodic and perpetual inventory systems
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Periodic Inventory System q Inventory balances at beginning of year is last year’s  ending balance. q When goods are bought you use the purchases account  to record them.   q When inventory is sold you record the event (revenue and  AR).   q You count the inventory and update it at the year end.   q Cost of goods sold is only recorded at year end. q You calculate the cost of goods sold as in cost flow (4)
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n Journal entries: To buy : Purchases XX A/P XX ** Assumes the gross approach is taken To return: A/P XX Purchase Returns and Allowances XX Periodic Inventory System
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To sell:   A/R XX         Sales XX Year end adjusting entries: CGS XX Beginning inventory XX CGS      XX         Purchase XX Ending inventory XX CGS XX Periodic Inventory System
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Periodic Inventory System q Inventory is not up to date. q
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This note was uploaded on 11/08/2011 for the course ACCY 301 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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day 8 inventory 2009 spring v2 - MeasurementofInventory...

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