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Chapter-6

# Chapter-6 - Test#2 1 Chapter 6 OMIT Pg 271-272 278-280...

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Test #2 1 Chapter 6 OMIT Pg. 271-272, 278-280 Inventory -When using inventory, we buy an assortment of units at different prices. -When we sell a unit, we must know how much we paid for it. -When a unit is sold it is recorded as follows: Sell it, debit A/R, and credit Inventory Buy it, debit Inventory, and credit A/P or Cash 4 Methods of Calculating Inventory 1. Specific Unit Method – where we know exactly where we pulled the items to sell. 2. Average Cost Method – divide the Cost of goods available for sale, by the Units available for sale. \$900/60 units 3. FIFO Method – First-In-First-Out; meaning that the unit that has been in inventory the longest, is the first unit we sell. -Work down the list until you have sold all 4. LIFO Method – Last-In-First-Out: meaning that the unit that has been in inventory the shortest, is the first unit we sell. GROSS PROFIT (40 Units) Avg. Cost = \$600 FIFO = \$540 LIFO = \$660 Consistency Principle GAP formulated to keep businesses from jumping from method to method. It forces businesses to stick with one method, from period to period.

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Chapter-6 - Test#2 1 Chapter 6 OMIT Pg 271-272 278-280...

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