ch08 student - Chapter 8: Valuation of Inventories: A...

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Chapter 8: Valuation of Inventories: A Cost-Basis Approach
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Inventories are: u items held for sale, or u goods to be used in the production of goods to be sold. Inventory Issues LO 1 Identify major classifications of inventory. Merchandiser Manufacturer Businesses with Inventory or Classification
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u One inventory account. u Purchase goods in form ready for sale. Inventory Issues LO 1 Identify major classifications of inventory. Illustration 8-1 Classification
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Three accounts u Raw materials u Work in process u Finished goods Inventory Issues Classification Illustration 8-1 LO 1 Identify major classifications of inventory.
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Classification Inventory Issues Illustration 8-2 LO 1 Identify major classifications of inventory.
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Inventory Cost Flow Inventory Issues Illustration 8-3 Companies use one of two types of systems for maintaining inventory records — perpetual system or periodic system . LO 2 Distinguish between perpetual and periodic inventory systems.
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Inventory Cost Flow LO 2 Distinguish between perpetual and periodic inventory systems. Perpetual System 1. Purchases of merchandise are debited to Inventory. 2. Freight-in is debited to Inventory. Purchase returns and allowances and purchase discounts are credited to Inventory. 3. Cost of goods sold is debited and Inventory is credited for each sale. 4. 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.
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Inventory Cost Flow LO 2 Distinguish between perpetual and periodic inventory systems. Periodic System 1. Purchases of merchandise are debited to Purchases. 2. Ending Inventory determined by physical count. 3. Calculation of Cost of Goods Sold: Beginning inventory $ 100,000 Purchases, net 800,000 Goods available for sale
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Inventory Cost Flow LO 2 Distinguish between perpetual and periodic inventory systems. Illustration: Fesmire Company had the following transactions during the current year. Record these transactions using the Perpetual and Periodic systems.
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LO 2 Inventory Cost Flow Illustration 8-4
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Inventory Cost Flow LO 2 Distinguish between perpetual and periodic inventory systems. Illustration: Assume that at the end of the reporting period, the perpetual inventory account reported an inventory balance of $4,000. However, a physical count indicates inventory of $3,800 is actually on hand. The entry to record the necessary write-down is as follows. Inventory Over and Short 200 Inventory 200 Note: Inventory Over and Short adjusts Cost of Goods Sold. In practice, companies sometimes report Inventory Over and Short in the “Other income and expense” section of the income statement.
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Inventory Control Inventory Issues LO 2 Distinguish between perpetual and periodic inventory systems. All companies
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This note was uploaded on 03/01/2012 for the course FIN 3154 taught by Professor Jceasterwood during the Spring '08 term at Virginia Tech.

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ch08 student - Chapter 8: Valuation of Inventories: A...

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