Lecture 4--Pre-recorded--B30000 Class Notes_afterclass.pdf...

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Inventory and Cost of Goods Sold &&&&SFVWFVNF &&&&° ??FPTQ\XPNSF BUS 30000: Financial Accounting Lecture 4 Pre-recorded Part 3
Lecture 4 topics Ѵ Inventories &&&&HHTXSWNSL WUJFWRJSW TK NSYJSWTUNJV! HTVW KQTZ FVVXRSWNTSV (Part 1) 1..++4 UJVJUYJ! UJHTSHNQNSL 1..++4 FSI ++..++4 (Part 2) Ѵ Fixed assets: a brief overview (more in the next class) (Part 3)
INVENTORY AND COST OF GOODS SOLD Accounting for Inventory and COGS using different costing methods
Different types of inventories Ѵ Inventory: Assets held for the purpose of sale to customers Ѵ A typical wholesaler or retailer buys assets that are immediately saleable in their current form: TSQ\ TSJ NSYJSWTU\ FHHTXSW TS NWV '''±88 Ѵ A manufacturing firm uses inputs from many different suppliers Three categories of inventory accounts on its B/S: 77FZ RFWJUNFQV! LTTIV WT GJ HTSVXRJI NS SUTIXHWNTS <<TUP²NS²SUTHJVV! LTTIV NS WMJ HTXUVJ TK SUTIXHWNTS Finished goods: LTTIV MJQI KTU VFQJ NS WMJ TUINSFU\ HTXUVJ TK GXVNSJVV
Inventory accounting: basics Ѵ Inventory accounting is important: ..SYJSWTUNJV FUJ XVXFQQ\ F VNLSNKNHFSW FVVJW 4YJUVWFWNSL NSYJSWTU\ INUJHWQ\ NSKQFWJV 3JW ..SHTRJ Ѵ Inventory is valued at the Lower-of-Cost-or-Market : Ѵ Market ! 3JW UJFQN]FGQJ YFQXJ ³::°88° ,,&&&&&&&&55 FSI ..++7788´µ¶ N°J°¶ JVWNRFWJI VJQQNSL SUNHJ NS WMJ TUINSFU\ HTXUVJ TK GXVNSJVV¶ QJVV UJFVTSFGQ\ SUJINHWFGQJ HTVWV TK HTRSQJWNTS¶ INVSTVFQ FSI WUFSVSTUWFWNTS Ѵ Cost ! NSYJSWTU\ SUNHJ NV IJWJURNSJI XVNSL TSJ TK WMJ KTQQTZNSL cost flow assumptions ! 88SJHNKNH ..IJSWNKNHFWNTS ++NUVW²NS²KNUVW²TXW ³++..++4´ 1FVW²NS²KNUVW²TXW ³1..++4´ &&&&YJUFLJ HTVW µ ..++7788 ² ..SWJUSFWNTSFQ ++NSFSHNFQ 77JSTUWNSL 88WFSIFUIV
Allocation of inventory cost Beginning Inventory + Net Purchases = Goods Available for Sale Ending Inventory (Balance Sheet) COGS (Income Statement)
Specific identification
FIFO (First-In-First-Out) Think of a conveyor belt
LIFO (Last-In-First-Out) Think of a coal pile
Inventory accounting: example XYZ, Inc. begins Year 1 with 0 units in Inventory Year 1 Year 2 January 1 Buy 1 unit @ $15 April 1 Buy 2 units @ $25 February 1 Buy 1 unit @ $18 April 1 Buy 1 unit @ $23 June 1 Buy 1 unit @ $24 December 1 Sell 2 units December 1 Sell 3 units Objective: Determine COGS and Ending Inventory for Year 1 and Year 2
Inventory accounting: example Year 1 Beginning Inventory $0 + Net Purchases $80 = Goods Available for Sale $80 Ending Inventory (Balance Sheet) ? COGS (Income Statement) ?
Inventory Accounting: example Year 1 Method COGS Ending Inventory FIFO 33 ( = 15 + 18) 47 (= 23 + 24) LIFO 47 (= 24 + 23) 33 ( = 15 + 18)
Inventory accounting: example Year 1 Beginning Inventory $0 + Net Purchases $80 = Goods Available for Sale $80 Ending Inventory (Balance Sheet) FIFO: $47 LIFO: $33 COGS (Income Statement) FIFO: $33 LIFO: $47
Inventory accounting: example Year 2 Method COGS Ending Inventory FIFO 72 ( = 23 + 24 + 25) 25 ( = 47 + 50 - 72) LIFO 68 ( = 25 + 25 + 18) 15 ( = 33 + 50 – 68) In Year 2: ==>>??¶ ..SH° GTXLMW WZT RTUJ XSNWV FW ·¸¹ JFHM ==>>??¶ ..SH° WMJS VTQI WMUJJ XSNWV ==>>??¶ ..SH° MFYJ OXVW TSJ XSNW QJKW NS NSYJSWTU\
Inventory accounting: example Year 2 Beginning Inventory FIFO: $47 LIFO: $33 + Net Purchases $50 = Goods Available for Sale FIFO: $97 LIFO: $83 Ending Inventory (Balance Sheet) FIFO: $25 LIFO: $15 COGS (Income Statement) FIFO: $72 LIFO: $68

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