201Lec06 - 201Lec06.PPT INVENTORY ISSUES 1 Issues in...

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201Lec06.PPT 1 INVENTORY ISSUES
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ALL  inve nto ry m us t b e   a c c o unte d fo r (a ls o  no t  do ub le  c o unte d). Q ue s tio n: Who owns  it  a t ye a r e nd? Seller 2 Ship to Sale or consignment? Reseller S h i p t o Buyer Issues in counting inventory Issues in counting inventory Issues in counting inventory Issues in counting inventory
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O wne rs hip o f G o o ds  o n b o a rd a   c a rrie r  (in transit on a  truck, boat, etc)   determined by  shipping terms shipping terms : Buyer considered owner when seller  ships (carrier departs from seller) Buyer NOT considered owner until  the goods reach the buyer. Ownership of inventory rules Ownership of inventory rules Ownership of inventory rules Ownership of inventory rules Consigned g o o ds  a re  o wne d b y s e lle r until s o ld b y  b uye r. FOB s hipping  po int      ( F re e   O B o a rd) FOB de s tina tio n 3
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This  is  the   only  account which appears on  both  the Income  Statement and the Balance Sheet. Inventory errors occur often. - Unintentional - Fraudulent manipulation   Consider the effects of inventory errors. Inventory Errors Inventory Errors Inventory Errors Inventory Errors 4
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SALES CGS BI +Purchases CGAS - EI CGS GROSS PROFIT - expenses Net loss $900 $ 300 + 500 800 - 200 - 600 300 - 350 - 50 Consider this example  of a troubled company in millions 5
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SALES CGS BI +Purchases CGAS - EI CGS GROSS PROFIT - expenses Net loss $900 $ 300 + 500 800 - 200 - 600 300 - 350 - 50 in m illio ns What happens to gross profit if: EI Overstated by EI Overstated by $150 $150 ? -350 -450 450 +100 6
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SALES CGS BI +Purchases CGAS - EI CGS GROSS PROFIT - expenses Net loss $900 $ 300 + 500 800 - 200 - 600 300 - 350 - 50 in m illio ns What happens to gross profit if: EI Overstated by EI Overstated by $150 $150 ? What happens next year? BI= last year EI -350 -450 450 +100 7
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1.SPECIFIC IDENTIFICATION : Tag each item with purchase info. Cost of sale equals amount on tag. 1.SPECIFIC IDENTIFICATION
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This note was uploaded on 03/08/2012 for the course BUS ADM 201 taught by Professor Konkel during the Spring '08 term at Wisconsin Milwaukee.

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201Lec06 - 201Lec06.PPT INVENTORY ISSUES 1 Issues in...

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