This preview shows page 1. Sign up to view the full content.
Unformatted text preview: Inventory Costing Methods Current Assets: Part II 6. Inventory Costing Methods
Even a casual observer of the stock markets will note that stock values often move significantly on
information about a company’s earnings. Now, you may be wondering why a discussion of
inventory would begin with this observation. The reason is that inventory measurement bears
directly on the determination of income! Recall from earlier chapters this formulation: Please click the advert Notice that the goods available for sale are “allocated” to ending inventory and cost of goods sold.
In the graphic, the units of inventory appear as physical units. But, in a company’s accounting
records, this flow must be translated into units of money. After all, the balance sheet expresses
inventory in money, not units. And, cost of goods sold on the income statement is also expressed in
money: We will turn your CV into
an opportunity of a lifetime Do you like cars? Would you like to be a part of a successful brand?
We will appreciate and reward both your enthusiasm and talent.
Send us your CV. You will be surprised where it can take you. Send us your CV on
www.employerforlife.com Download free ebooks at bookboon.com
24 Inventory Costing Methods Current Assets: Part II This $1 less of allocating $1 less of available for sale into ending inventory
This means that allocating means thatthe total cost of goodsthe total cost of goods available for sale into ending inve
will necessarily resultwill necessarily result in cost of goods sold (and vice versa). sold (andas cost of
in placing $1 more into placing $1 more into cost of goods Further, vice versa). Further, as
goods sold is increased or decreased, there is an decreased, thereon gross profit. effect on gross profit. Remember, sa
goods sold is increased or opposite effect is an opposite Remember, sales
minus cost of goods sold equals gross profit. Thus, a critical profit. Thus, a critical income is the
minus cost of goods sold equals gross factor in determining factor in determining income is t
allocation of the cost of goods available forof goods available forinventory and ending goods sold: cost of goods s
allocation of the cost sale between ending sale between cost of inventory and 6.1 Determining the Inventory
6.1 Determining the Cost of Ending Cost of Ending Inventory I dollar amount for the dollar was simply given. Not much attention was given
In earlier chapters, the n earlier chapters, inventory amount for inventory was simply given. Not much attention was
to the specific details to the how thatdetails about how that To delve determined.this delve deeper into this subject, l
about specific cost was determined. cost was deeper into To subject, let’s
begin by rule: Inventory should include all costs that include all costs
begin by considering a general considering a general rule: Inventory shouldare “ordinary andthat are “ordinary and
necessary” to put the goods “in place” their resale.
necessary” to put the g...
View Full Document
This note was uploaded on 06/07/2013 for the course BA 201 taught by Professor Cuongvu during the Fall '13 term at RMIT Vietnam.
- Fall '13