Accounting Ch 5

Accounting Ch 5 - Chapter 5 Inventories and Cost of Goods...

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Chapter 5: Inventories and Cost of Goods Sold 3 Forms of Inventory Cost Three distinct types of costs are incurred by a manufacturer - Direct materials (raw materials) - Direct labor (people working in assembly line) - Manufacturing overhead o All other costs related to manufacturing process but can’t be matched to specific units of output o Ex: Depreciation of a factory building, salary of a supervisor 3 Forms/Stages of Inventory Three stages in the development of inventory - Raw materials o Transformed into a finished product by the addition of direct labor and manufacturing overhead - Work in Process/Progress o The cost of unfinished products in a manufacturing company - Finished goods o Inventory that has completed the production process and is available for sale o Equivalent of merchandise inventory for a retailer/wholesaler in that both represent the inventory of goods held for sale Merchandise inventory: account wholesalers/retailers use to report inventory held for resale. Type of Business Inventory Costs included in inventory Retailer/Wholesaler Merchandise inventory Cost to purchase Manufacturer Raw materials Cost of materials before production Work in process Raw materials + labor + overhead Finished goods Completed but unsold items Net Sales of Merchandise Gross Profit: Net sales – COGS Net sales: Sales revenue – sales returns and allowances and discounts Sales revenue: Representation of the inflow of assets (cash or A/R) from the sale of a product during the period. Sales Returns and Allowances - Contra-revenue account used to record refunds to customers and reductions of their accounts - Refunds or allowances (for damaged goods sometimes stores will give them a credit for a certain amount)
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Credit Terms - n/30 – net amount of selling price is due within 30 days of the invoice - 10 EOM – due anytime within ten days after the end of the month Sales Discounts - 1/10 n/30 - 1% off if paid within first 10 days after invoice. Full invoice due in 30 - Sales Discounts: a contra-revenue account used to record discounts given to customers for early payment of their accounts – reduces sales
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This note was uploaded on 02/22/2012 for the course ACCT 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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Accounting Ch 5 - Chapter 5 Inventories and Cost of Goods...

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