ch7_stu_sp08

ch7_stu_sp08 - ACG 2021 Accounting for Decisions Chapter 7:...

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1 ACG 2021 Accounting for Decisions Chapter 7: Cost of Goods Sold and Inventory Yunhao Chen [email protected]
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2 What do we hope to learn? What is inventory and how is it recorded? How is Cost of Goods Sold determined? Four major inventory cost flow assumptions What is the lower-of-cost-or-market rule? What is periodic versus perpetual inventory systems? What is the effect of error in inventory on financial statements?
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3 Inventory Inventory is tangible property that is held for resale or will be used in producing goods or services. Inventory is reported on the B/S as a current asset. Types of inventory: Merchandise inventory Raw materials inventory Work in process inventory Finished goods inventory
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4 Inventory Inventory is recorded at the price paid for it. The amount recorded for inventory should include invoice price freight charges Inventory may be tracked with either a periodic or a perpetual inventory system
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5 Shipping Costs Whoever owns the goods while they are in transit pays for the shipping Shipping costs to get the inventory IN are included in the cost of the inventory (for purchaser) Shipping costs to sell (ship OUT) are part of operating expenses (for seller).
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6 Cost of Goods Sold Purchases Less: Purchase Discounts Add: Freight In = Net purchases Beginning inventory Add: Net Purchases = Goods Available for Sale Goods Available for Sale Deduct: Ending inventory = Cost of goods sold
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7 What are Inventory Cost Flow Methods? Four common cost flow methods are used to assign the total dollar amount of Goods Available for Sale between ending Inventory & “Cost of Goods Sold”. The actual physical flow of inventory items may differ from the cost flow assumption First-In, First-Out (FIFO) Cost of the oldest inventory items are charged to Cost of Goods Sold when goods are sold. Cost of the newest inventory items remain in ending inventory. (continue on next page)
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8 Last-In, First-Out (LIFO) Cost of the newest inventory items are charged to cost of goods sold when goods are sold. Cost of the
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This note was uploaded on 04/07/2008 for the course ENG 2021 taught by Professor Yunhaochen during the Spring '08 term at FIU.

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ch7_stu_sp08 - ACG 2021 Accounting for Decisions Chapter 7:...

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