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Chap 6 WebCT Class Notes 2010

Chap 6 WebCT Class Notes 2010 - CHAPTER 6 Inventories I 1...

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Victor Leung ACCT2111 2010 Chapter 6 1 CHAPTER 6 Inventories I. Classifying Inventory 1. (Obj. 01) Merchandise inventory has two common characteristics: (a) it is owned by the company and (b) it is in a form ready for sale in the ordinary course of business. 2. A manufacturer's inventory is usually classified into three categories: a. Finished goods that are completed and ready for sale. b. Work in process that is in various stages of production but not yet completed. c. Raw materials that are on hand waiting to be used in production. II. Determining actual inventory costs (page 247) Cost of inventory a. Counting the units for each item of inventory. b. Applying unit costs to the total units for each item. c. Adding the costs for each item of inventory to determine the total cost of goods . Total Cost = Number in unit of each item x Unit cost of these items A. Inventory items in Units include 1. Goods on hand by a physical inventory count Many businesses take a physical inventory count on the last day of the year to determine the inventory on hand at the balance sheet date. Taking a physical inventory of goods on hand will involve actually counting, weighing, or measuring each kind of inventory on hand. 2. Goods in transit (pages 248- 249) Goods in transit should be included in the inventory of the party that has legal title (ownership) to the goods (depends on the term of sale.). Purchased FOB Shipping Point Sold FOB Destination 3. Goods on consignment Consigned goods in other locations ( consignee ) that is still owned by the company ( consignor ) Exclude goods on hand that belongs to another company and being held on consignment. B. Cost of an item includes all costs necessary to acquire the goods and to place them in a condition ready for sale. Purchase price of the merchandise purchased, net of trade discounts received. Including related costs for the purchase of goods, such as transportation expense paid, taxes, and handling cost.
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Victor Leung ACCT2111 2010 Chapter 6 2 III . (Obj 02) Inventory Costing (Cost Flow) Methods (Pages 250-259; 266-269) (1) (Actual) Specific Identification Method tracks the actual physical flow of the goods When units are purchased, each item of inventory is marked, tagged, or coded with its "specific" unit cost. the actual cost of the specific unit sold is charged to cost of goods sold company sells a limited variety of high-unit cost items enable management to manipulate net income by selecting the units with the lowest cost to match against revenues, maximizing net income. (2) (Assumed) First-In, First-Out Method (FIFO) assume the costs of good sold should charged against revenue in the order in which the costs were incurred (i.e., the earliest goods acquired are the first one to be sold).
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Chap 6 WebCT Class Notes 2010 - CHAPTER 6 Inventories I 1...

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