Financial Act Chpt 6 Notes - Chapter 6 Merchandise...

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Chapter 6 Merchandise Inventory and Cost of Goods Sold Inventory: Tangible property (current assets) held for sale in the normal course of business or will be used up in the production of goods to be sold in normal operations. Types of Inventory: • Merchandisers: Have Merchandise Inventory on their balance sheet-Goods held for resale in the normal operations of the business. (Ex. Target, Sears, American Eagle-buy goods in finished form from wholesalers to sell in their stores- Chapter 5). Manufacturers: Have 3 different inventory accounts on their balance sheet, depending on stage the goods are in the production process o Raw materials: Items acquired for the manufacturing process that will be processed into a finished product Work In Process (WIP): Goods that are in the process of being manufactured, but not yet completed. Includes costs for raw materials, direct labor, and overhead. Raw Materials: Direct materials that go into production process Direct labor: Could be considered "touch labor"; amount paid to workers directly producing the product Overhead: All other manufacturing costs, excluding raw materials and direct labor Finished Goods: Goods are finished in the production process, and ready for sale. How is inventory valued? Initially recorded at cost. Includes all necessary costs to get the inventory ready for its intended sale. (costs of production, shipping, inspection, etc.) Cost of Goods Sold: Costs of inventory recorded as an expense at time inventory is sold, on the income statement.
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