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ACC 201 Chapter 6 Weekly Notes

by: Savannah Roberts

ACC 201 Chapter 6 Weekly Notes 40415 - ACC 201 - 001

Savannah Roberts
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About this Document

These notes cover what is going to be on our next exam with Chapters 6-8
Introduction to Financial Accounting
Sandra D Byrd
Class Notes




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This 3 page Class Notes was uploaded by Savannah Roberts on Wednesday October 5, 2016. The Class Notes belongs to 40415 - ACC 201 - 001 at Missouri State University taught by Sandra D Byrd in Fall 2016. Since its upload, it has received 20 views. For similar materials see Introduction to Financial Accounting in Accounting at Missouri State University.

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Date Created: 10/05/16
Accounting 201 (Sandra Byrd) Weekly Notes Chapter 6 – Reporting and Analyzing Inventory Important Terms: Consigned Goods: goods held for sale by one party although ownership of the goods is retained by another party  Such as at a flea market, craft sale, or garage sale FOB Destination (Free on Board): freight term indicating that inventory is “Free on Board” to its  destination. The seller pays the freight costs and holds title to the goods until they are  transported to their destination.   Seller (Shipping Point)  In Transit  Buyer (Destination) (Seller holds title until goods arrive at destination) FOB Shipping Point: a freight term indicating that inventory is “Free on Board” only to its  shipping point. The buyer pays freight costs and holds title to the goods as soon as the goods  are at the shipping point and until they are transported to their destination  Seller (Shipping Point)  In Transit  Buyer (Destination) (Buyer holds title as soon as goods are shipped) Freight­In: is considered a cost of purchasing an inventory item and is included in Cost of Goods Sold  When we pay the freight on goods we purchase it is classified as “freight­in” – it  increases the cost of inventory and is a cost of goods sold.  Freight­Out: is not considered a cost of inventory item and is included in Selling Expenses  The purchasing department has control of the cost we pay freight to sell inventory, this is “freight­out” and it is a “selling cost.” Does not go in inventory cost. Lower of cost of market (LCM): a basis whereby inventory is stated at the lower of either actual  company determined cost or market cost as determine by current replacement cost. Current Replacement Cost: the cost to replace an inventory item based upon current market  conditions Inventory Costing Methods: are used by companies to determine the cost of inventory that will  be shown on the company’s balance sheet and income statement. There are a number of  acceptable methods. The more common methods include:  Specific Identification: an actual physical flow costing method in which individual items  still in inventory are specifically given a cost to arrive at, the total cost of the ending  inventory  Type of inventory costing method an automobile dealer will probably use to calculate  year end cost of cars on their lot.  First­in, First­out (FIFO): a method that assumes that the costs of the earliest purchased  goods are the first to be recognized as cost of goods sold  First items purchased, first items sold  Last­in, First­out (LIFO): a method that assumes that the costs of the latest purchased  goods are the first to be allocated to cost of goods sold.  Last items purchased, first items sold  Weighted Average Unit Cost: a method that is weighted by the number of units  purchased at each unit cost Theory Questions If goods shipped FOB shipping point are in transit at the end of a period, they should be  included in the ending inventory of the: A. Purchasing company      B. Selling Company          C. Freight company          D. None of these The inventory method under which the actual cost of a particular inventory item is used to calculate  ending inventory is called:  A. LIFO B. FIFO C. Specific identification D. Average Cost Inventory is shown on the financial statements at cost, except when: A. The inventory is damaged B. The market value of the inventory falls below the cost of the inventory C. The market value of the inventory rises above the cost of the inventory D. (A) and (B) E. (A) and (C)  Which of the following is true when the current year’s ending inventory amount is overstated? A. Total current assets are understated B. Cost of goods available for sale is understated C. Cost of goods sold is overstated D. Net income is overstated Which of the following will occur when the cost of purchasing merchandise is going down? A. LIFO will result in a lower net income, but a higher ending inventory than will FIFO B. LIFO will result in both a lower net income, but a higher ending inventory than will FIFO C. FIFO will result in a lower net income and ending inventory than will LIFO D. FIFO will result in a lower net income, but a higher ending inventory than will LIFO


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