6. Lecture 6_Inventories.pptx - Accounting Principles...

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Accounting PrinciplesTwelveth EditionWeygandt ● Kimmel ● KiesoChapter 6InventoriesThis slide deck contains animations. Please disable animations if they cause issues with your device.
Chapter OutlineLearning ObjectivesLO 1Discuss how toclassifyanddetermineinventory.LO 2Applyinventory cost flow methodsand discuss theirfinancial effects.LO 3Explain the statementpresentation and analysisofinventory.2
Classifying and Determining InventoryDiscuss how to classify and determine inventoryDiscuss how to classify and determine inventoryClassifying InventoryMerchandisingcompanyOneClassification:InventoryLO 1ManufacturingCompanyThreeClassifications:Raw MaterialsWork in ProcessFinished Goods3
Determining Inventory Quantities(1 of 2)Physical Inventory taken for two reasons:Perpetual System1.Checkaccuracyof inventory records.2.Determine amount of inventory lost due to wasted rawmaterials, shoplifting, or employee theft.Periodic System1.Determine theinventory on hand.2.Determine thecost of goods sold for the period.LO 14
Determining Inventory Quantities(2 of 2)Taking a Physical InventoryInvolves counting, weighing, or measuring each kind ofinventory on hand.Companies often “take inventorywhen business isclosedor business isslowat theend of accounting periodLO 15
Determining Inventory Quantities(3 of 3)Determining Ownership of GoodsGoods in TransitPurchasedgoodsnot yet receivedSoldgoodsnot yet deliveredIncluded in inventory of company that haslegal titletogoodsLO 16
Goods in Transit(1 of 3)Freight costs incurred by the seller are anoperating expense.LO 17
Inventory Methods and Financial EffectsLEARNING OBJECTIVE 2Apply inventory cost flow methods and discuss theirfinancial effects.Inventory is accounted for at costIncludes all expenditures necessary to acquire goods and place them ina condition ready for saleUnit costs are applied to quantities to compute total cost of inventoryand cost of goods sold using the following costing methods:oSpecific identificationCost Flow AssumptionsoFirst-in, first-out (FIFO)oLast-in, first-out (LIFO)oAverage-costLO 28
Cost Flow Assumptions(1 of 9)Cost flow assumptions DO NOTneed to be consistentwith the physical movement of the goods.LO 29
Cost Flow Assumptions(2 of 9)Question:Data for Houston Electronics’ Astro condensers.Beginning Inventory + Purchases − Ending Inventory = Cost ofGoods SoldLO 210
Cost Flow Assumptions(3 of 9)First-In, First-Out (FIFO)Costs ofearliest goods purchasedarefirst to berecognizedin determining cost of goods soldCompanies determine cost ofending inventorybytaking unit cost of most recent purchase and workingbackward until all units of inventory have been costedLO 211
First-In, First-Out (FIFO)(1 of 2)LO 212
Cost Flow Assumptions(4 of 9)

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Term
Spring
Professor
GAINES
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Apply inventory cost flow methods

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