ACC151Chapt5

ACC151Chapt5 - Chapter 5: Accounting for Inventories Buy...

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Chapter 5: Accounting for Inventories Buy Inventory + Purchases = Goods Available for Sale = Inventories, Cost of Goods Sold DETERMINING INVENTORY ITEMS Merchandise inventory includes all goods that a company owns and holds for sale, regardless of where the goods are located when inventory is counted Items Requiring Special Attention: Goods in Transit, Goods on Consignment, Goods Damaged or Obsolete GOODS IN TRANSIT DETERMINING INVENTORY COSTS Include all expenditures necessary to bring an item to a salable condition and location, Invoice Cost: - discounts and allowances + Import Dates + Sales Tax + Freight + Storage + Insurance INTERNAL CONTROLS AND TAKING A PHSYICAL COUNT Most companies take a physical count of inventory at least once each year. When the physical count does not match the Merchandise Inventory account, an adjustment must be made. Inventory Shrinkage : some walked away, misplaced, damaged and unaccounted for INVENTORY COSTING UNDER A PERPETUAL SYSTEM Inventory affects: 1) Balance Sheet 2) Income Statement The matching principle requires matching cost of sales with sales Cost account method does not necessarily have to reflect the actual inventory; not actual flow of inventory FREQUENCY USE OF INVENTORY METHODS FIFO = First In First Out: assumes costs flow in the order incurred LIFO = Last In First Out: Assumes costs and lows in the reverse order incurred Weighted Average: Assumes cost flow at an average of the costs available
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ACC151Chapt5 - Chapter 5: Accounting for Inventories Buy...

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