BMGT 220 Chapter 06

BMGT 220 Chapter 06 - Slide 6-1 Inventories Financial...

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Unformatted text preview: Slide 6-1 Inventories Financial Accounting, Seventh Edition Chapter 6 Slide 6-2 Merchandise Inventory affects . . . The matching principle requires matching cost of goods sold with sales revenue. Balance Sheet Income Statement Why is Inventory Cost Analysis Important? Slide 6-3 1. Gross profit operating expenses = net income 2. Sales cost of goods sold operating expenses = net income 3. Net income + operating expenses = Gross Profit 4. Operating expenses cost of goods sold = gross profit Knowledge Check Question: Which of the following expressions is incorrect ? Slide 6-4 Classifying Inventory One Classification: Merchandise Inventory Three Classifications: Raw Materials Work in Process Finished Goods Merchandising Company Manufacturing Company Regardless of the classification, companies report all inventories under Current Assets on the balance sheet. Slide 6-5 Physical Inventory taken for two reasons: Perpetual System 1. C he c k a c c ura c y o f inve nto ry re c o rds . 2. Determine amount of inventory lost (wasted raw materials, shoplifting, or employee theft). Periodic System 3. Determine the inventory on hand 4. Determine the cost of goods sold for the period. Determining Inventory Quantities Slide 6-6 Involves counting, weighing, or measuring each kind of inventory on hand. Taken, when the business is closed or when business is slow. at end of the accounting period. Taking a Physical Inventory Determining Inventory Quantities Slide 6-7 FOB Destination Point Public Carrier Seller Buyer Public Carrier Seller Buyer FOB Shipping Point Ownership passes to the buyer here. 5-7 Determining Ownership of Goods in Transit G o o ds in tra ns it s ho uld b e inc lude d in the inve nto ry o f the c o m pa ny tha t ha s legal title to the g o o ds . Le g a l title is de te rm ine d b y the terms of sale . Slide 6-8 1. Merchandise in transit sold to customers, FOB shipping point 2. Merchandise in transit sold to customers, FOB destination 3. The cost of all inventory purchased during the period 4. Merchandise purchased in transit with terms FOB destination Knowledge Check Question: Ending Inventory is equal to inventory on hand plus: Slide 6-9 Consigned Goods In some lines of business, it is common to hold the goods of other parties and try to sell the goods for them for a fee, but without taking ownership of goods. These are called consigned goods. Determining Ownership of Goods Determining Inventory Quantities Slide 6-10 Unit costs can be applied to quantities on hand using the following costing methods: Specific Identification First-in, first-out (FIFO) Last-in, first-out (LIFO) Average-cost Inventory Costing Cost Flow Assumptions Slide 6-11 Wally Mart buys and sells toasters and had the following transactions for 2011: June 10 Purchased 10 toasters at $6 per unit....
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BMGT 220 Chapter 06 - Slide 6-1 Inventories Financial...

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