chap 6 notes

Chap 6 notes - 2 FIFO(first in first out)= oldest goods purchased are first to be sold 3 LIFO(last in first out)= newest goods purchased are first

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Classifying inventory: 1. Merchandising company a. Only have merchandising inventory 2. manufacturing company a. finished goods b. work in progress c. raw materials Just in time (JIT) method= make and sell your inventory quick =storage costs are low Determining ownership of goods : 1. goods in transit= goods in travel at end of acct. period a. FOB shipping point= ownership passes to buyer upon UPS picking it up from seller b. FOB destination= ownership passes to buyer when they receive the product 2. Consigned goods= goods held by someone else who tries to sell them and charges a fee to actual owner of goods when sold Inventory costing : 1. Specific ID method: assign a specific cost to a specific good and when sold, COGS is affected by the specific price of the good a. Need serial #s, bar codes, vin #s, or crazy ass scanning technology
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Unformatted text preview: 2. FIFO(first in first out)= oldest goods purchased are first to be sold 3. LIFO(last in first out)= newest goods purchased are first to be sold 4. Average cost= uses avg weighted cost Income statement effects : (Assuming inflation) 1. FIFO=highest NI a. Some profit is referred to as “phantom profit” because profit is overstated 2. LIFO=lowest NI a. Most accurate revenue b. LOWER INCOME TAXES 3. Average= middle NI Balance sheet effects : 1. FIFO= accurate 2. LIFO= understated-When value of inventory is lower than cost, they can write down its market value instead-AKA: Lower of cost or market (LCM) “market”=current replacement cost LIFO reserve: =when companies use LIFO they must report the amount that inventory would increase if the company was using FIFO...
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This note was uploaded on 11/21/2011 for the course BUS 214 taught by Professor Waker during the Winter '08 term at Cal Poly.

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