ch 5 notes1 - I. Inventory basics A. Determining inventory...

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I. Inventory basics A. Determining inventory 1. Goods in transit a) If ownership has passed to the purchaser the goods are included in supplier's inventory b) FOB destination: seller pays shipping; ownership is passed when goods are loaded on the transport vehicle c) FOB shipping point: buyer pays shipping; ownership is passed when goods arrive at their destination 2. Goods on consignment a) Owner = consigner * Continues to own the consigned goods and reports them in inventory b) Seller = consignee 3. Goods damaged or obsolete a) If goods can not be sold they can not be counted in inventory * Damaged, obsolete b) If goods can be sold at a reduced price they are sold at their net realizable value * Sales price – cost of making the sale c) The period when damage occurs is the period when the loss in value is reported B. Determining inventory costs 1. Inventory costs: expenditures necessary to bring an item to salable condition and location a) Cost of inventory item = invoice cost – discount of any type + import duties + freight + storage + insurance + aging process 2. According to the matching principle, inventory costs should be recorded against revenue in the period when revenue is sold 3. Materiality principle: incidental costs are immaterial and the effort in assigning them outweighs their benefits C. Internal flows and taking a physical count 1. Physical count = taking an inventory a) Steps
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* Confirm the validity of inventory including its existence, amount and quality * Second count * Manager confirmation 2. Adjust inventory account balance to actual inventory available II. Inventory costing under a perpetual system A. Use matching principle to decide how much of the cost of the goods available for sale is deducted from sales and how much is carried forward as inventory and match for future sales
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This note was uploaded on 02/09/2012 for the course ACCT 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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ch 5 notes1 - I. Inventory basics A. Determining inventory...

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