inventory methods ch 7

inventory methods ch 7 - 3. Debit difference to COGS 4....

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VII. Which inventory costing method to use A. Consistency principle: requires that a company use the same accounting methods period after period so that financial statements are comparable across periods B. IRS requires that if LIFO is used for reporting tax income LIFO be used in financial statements as well VIII. Lower of cost market A. Inventory must be reported at market value when the market is lower than cost 1. Provides consistency with conservatism principle but conflicts with cost principle B. Methods 1. Separately to each individual item 2. Categorial to each category of merchandise 3. The whole inventory C. Steps 1. Examine current costs and market value 2. If market value is lower than cost, subtract cost from value
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Unformatted text preview: 3. Debit difference to COGS 4. Credit difference to MI IX. Financial statement effects of inventory errors A. Understate ending inventory 1. COGS = overstated 2. Net income = understated 3. Assets = understated 4. Equity = understate B. Understate beginning inventory 1. COGS = understate 2. Net income = overstate 3. Assets = 4. Equity= C. Overstate ending inventory 1. COGS = understated 2. Net income = overstated 3. Assets = overstated 4. Equity = overstated D. Overstate beginning inventory 1. COGS = overstated 2. Net income = understated 3. Assets = understated 4. Equity = understated...
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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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inventory methods ch 7 - 3. Debit difference to COGS 4....

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