ORIE 3150 slides September 20 2011

ORIE 3150 slides September 20 2011 - ORIE3150 GAAP...

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ORIE 3150 GAAP Inventory Accounting September 20, 2011
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Prelim I – Flood shortened version! September 27 th in Hollister 110 (A – G) and Hollister B-14 (H – Z). Coverage is up to and including the cash cycle, Homework 1, 2, and 3. Closed book, closed notes, calculator required. Sign up for a make-up if you need one.
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USA We will cover inventory accounting as done in the USA under GAAP. The rest of the world does it differently.
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Inventory Costing Methods First, cost flow is not the same as goods flow. We always sell the old beer first, before its expiration date. However, the cost associated with that beer remaining in inventory may be that of the old beer! Cost flow ≠ goods flow With one exception…on the next slide.
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Inventory Costing Methods – the Big 4 1. Specific Identification (the exception) 2. Average Weighted Cost 3. FIFO (first in, first out) 4. LIFO (last in, first out)
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FIFO Meaning the oldest inventory item is removed from inventory when a customer buys an item. We just mean the cost associated with that item, of course. Equivalent statement is LISH (last in, still here) In a time of rising inventory purchase costs, how does FIFO usage affect net income?
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Recap FIFO – first in, first out. 1. Also LISH (last in, still here) 2. New items are in inventory. Thus, the inventory amount on the B/S is accurate! 3. Old items were sold. The amount shown on the income statement as the cost of goods sold is NOT accurate or up to date! 4. FIFO → balance sheet is accurate. 5. FIFO has been criticized for magnifying the effect of the business cycle on income.
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LIFO The newest item is removed from inventory when the customer buys something. Again, we just mean the cost of the newest item. An equivalent statement is FISH (first in, still here). In a time of rising inventory replenishment costs, how does LIFO usage affect net income? If you are a small business owner, which will you use, FIFO or LIFO?
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LIFO – last in, first out 1. Also FISH (first in, still here) 2. Old items are in inventory. The amount in Inventory on the balance sheet is out of date or inaccurate. 3. New items are sold. The cost of goods sold on the income statement represents the current costs of these items. 4. LIFO → income statement is accurate. 5.
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This note was uploaded on 12/11/2011 for the course ORIE 3150 at Cornell University (Engineering School).

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ORIE 3150 slides September 20 2011 - ORIE3150 GAAP...

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