Chapter 5-1 - Chapter 5: Inventories and Cost of Goods Sold...

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Chapter 5: Inventories and Cost of Goods Sold
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Income Statement Format ABC Inc Income Statement for 2008 Net Sales $100,000 Cost of goods sold 60,000 Gross margin 40,000 Operating expenses 25,000 Operating income 15,000 Non-operating items 4,000 Income before tax 19,000 Income tax expense 7,600 Net income $ 11,400 Earnings per share (10,000 shares) $1.14
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Gross Profit Gross Profit (Gross Margin) = Net Sales – Cost of goods sold Gross Profit percentage (rate) = Gross profit / Sales Common size income statement
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Sales Revenue Revenue recognition principle Point of Sale FOB shipping point, FOB destination. Net sales revenue (Contra revenue accounts) Credit card discounts Sales discounts (1/10, n/45) Sales returns and allowances Sales returns involves COGS reversal
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Inventory Total Current Company Date assets assets Inventory Cash Wal-Mart 10/31/09 172,934 51,948 38,775 6,003 Caterpillar 9/30/09 60,838 26,223 6,815 4,188 ExxonMobil 9/30/09 229,307 57,324 12,585 12,623 Google 12/31/09 40,497 29,167 0 24,485 All numbers in millions of dollars. The first three companies use the LIFO method, although in Wal-Mart’s case this is approximately the same as FIFO. Wal-Mart measures the cost of inventory using the retail inventory method.
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Inventory Total Current Company Date assets assets Inventory Cash Wal-Mart 10/31/09 100.0% 30.0 22.4 3.5 Caterpillar 9/30/09 100.0% 43.1 11.2 6.9 ExxonMobil 9/30/09 100.0% 25.0 5.5 5.5 Google 12/31/09 100.0% 72.0 0.0 60.5 Common-size analysis (Total assets = 100%)
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Inventory Management of Inventory Types of Inventory Merchandise Inventory Raw Materials, Work-in-process, Finished goods Other – Supplies, etc Cost of Merchandise Inventory Purchase price Freight-in Other adjustments
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Inventory Equation (Cost of Goods Sold equation) Cost of goods sold = BI + Purchases – EI (This is the Inventory T-account) Costs IN = Costs OUT (= Cost of goods available for sale) BI + Purchases = COGS + EI
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Inventory Systems Periodic Inventory system: Track costs in (opening inventory and purchases) Count and cost ending inventory to measure cost of goods sold Interim estimates Lack of control over inventory shrinkage Perpetual Inventory system: Real time measurement of cost of goods sold and inventory Positive measure of inventory shrinkage More informative but more costly
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Net purchases Cost of goods purchased: = purchases - purchase returns and allowances – purchase discounts + transport-in All costs to get inventory into a saleable location and condition should be included in inventory. FOB destination, FOB Shipping Note: Transport-out is a selling expense.
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Exercise 5-20: Income Statement for a Merchandiser Fill in the missing amounts in the following income statement for Carpenters Department Store Inc.: Sales revenue $125,600 Less: Sales returns and allowances (a) Net sales $122,040 Cost of goods sold: Beginning inventory
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This note was uploaded on 02/20/2012 for the course MGMT 200 taught by Professor Greigg during the Fall '08 term at Purdue University.

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Chapter 5-1 - Chapter 5: Inventories and Cost of Goods Sold...

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