Chapter_8_Valuation_Of_Inventories_A_Cost_Basis Approach_Course_Notes

Chapter_8_Valuation_Of_Inventories_A_Cost_Basis Approach_Course_Notes

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Unformatted text preview: CHAPTER 8 INVENTORIES: PART I 1. Inventory Issues 2. Physical Goods Included in Inventory 3. Costs Included in Inventory 4. Cost Flow Assumptions 5. LIFO Special Issues 6. Basis for Selection 1. Inventory Issues a. Classification - two types: 1) Items held for resale (Merchandiser), or 2) Goods to be used in the production of goods to be sold (Manufacturer). Merchandiser one inventory account (Merchandise Inventory) Manufacturer three accounts 1) raw materials, 2) work in process, and 3) finished goods. b. Control two systems for maintaining inventory records: 1) Perpetual system, and 2) Periodic system. Perpetual System: Purchases of merchandise are debited to Inventory. Freight-in is debited to Inventory. Purchase returns and allowances and purchase discounts are credited to Inventory. Cost of goods sold is debited and Inventory is credited for each sale. Subsidiary records show quantity and cost of each type of inventory on hand. The perpetual inventory system provides a continuous record of Inventory and Cost of Goods Sold. Inventory Purchases Cost of Goods Sold CHAPTER 8 INVENTORIES: PART I Freight-in Discounts Returns Allowances Ending Balance Periodic System: Purchases of merchandise are debited to Purchases. Ending Inventory determined by physical count. Inventory Purchases (I/S) Cost of Goods Sold Calculation of Cost of Goods Sold: Beginning inventory $ 100,000 + Purchases, net 800,000 = Goods available for sale - Ending inventory 125,000 = Cost of goods sold CHAPTER 8 INVENTORIES: PART I Adjusting Entry: c. Valuation of Inventories Co mpanies must allocate the cost of all the goods available for sale (or use) between the goods that were sold or used and those that are still on hand. Valuation requires: The physical goods (goods on hand, goods in transit, consigned goods, special sales agreements). The costs to include (product vs. period costs). The cost flow assumption (FIFO, LIFO, Average cost, Specific Identification, Retail, etc.). CHAPTER 8 INVENTORIES: PART I Physical Goods A company should record inventory purchases when it obtains legal title to the goods. Special considerations: General Rule: Inventory is buyers when received, except: FOB shipping point Buyers at time of delivery to com mon carrier Consignment goods Sellers, not buyers Sales with buybacks Sellers, not buyers Sales with high rates of returns Buyers, if you can estimate returns Sales on installments- Buyers, if you can estimate collectability....
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Chapter_8_Valuation_Of_Inventories_A_Cost_Basis Approach_Course_Notes

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