Accounting 231- Class Notes for 2/22/16- Ch5: Inventory
Accounting 231- Class Notes for 2/22/16- Ch5: Inventory ACC231
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This 0 page Class Notes was uploaded by Sophia Mattera on Monday February 22, 2016. The Class Notes belongs to ACC231 at Arizona State University taught by Eric Rosano in Spring 2016. Since its upload, it has received 43 views. For similar materials see Uses of Accounting Info I in Accounting at Arizona State University.
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Date Created: 02/22/16
ACC 231 Class notes from 22216 Chapter 5 Allocating Cost Inventory 0 What should COGS really be 0 When many items of the same thing are purchased at different costs the lowest most conservative price is used for COGS GAAP Inventory Costing Four Methods 1 Speci c Identi cation 0 00000 Speci c cost of each unit Cost assigned actual cost paid Cost of goods sold actual cost Ending inventory actual cost remaining Rarely used An example of where it might be used would be in the sale of cars because each car has its own identi cation number so they would easily be able to track which on was sold 2 FIFO Firstin Firstout O O O O Earliest inventory cost Cost of goods sold oldest cost Ending inventory most recent costs Generally cost ow matches the physical ow 3 LIFO Lastin Firstout O O 0 Most recent costs Costs of goods sold latest costs Ending inventory oldest costs 4 Average Cost 0 Weighted average of the costs A business chooses whichever method they wish to use Consistencv and fulldisclosure are required for all methods Typically companies would choose to use FIFO because it maximizes income International companies are required to use LIFO instead of FIFO Fulldisclosure businesses must report in their statements which accounting method that they choose to use Conservatism being cautious understating amounts Bene ts to different methods o Closest to actual ow 0 Maximizes net income 0 Attracts investors o LIFO o Minimizes taxes 0 Minimizes inventory 0 Average Cost 0 quotmiddle groundquot Gross Pro t Method Beginning Inventory Purchases Cost of goods available for sale Ending inventory Cost of goods sold Ratios Inventory turnover ef ciency asset management 0 Costaverage inventory inventory turnover Dayssalesininventory liquidity going concern 0 Average inventory COGS 365 days Dayssalesin inventory 0 Calculates how quickly we are selling inventory
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