Ch. 6 NOTES ACCOUNTING 2101
Ch. 6 NOTES ACCOUNTING 2101 ACCT 2101 A
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This 4 page Class Notes was uploaded by Destinee Benson on Thursday October 8, 2015. The Class Notes belongs to ACCT 2101 A at Georgia State University taught by Kris J. Clark (P) in Summer 2015. Since its upload, it has received 322 views. For similar materials see Principles of Accounting 1 in Accounting at Georgia State University.
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Date Created: 10/08/15
Accounting 2101 Chapter 6 Reporting and Analyzing Inventory 3 parts of Reporting and Analyzing Inventory 1 Classifying and Determining Inventory Merchandise or Manufacturing Company 2 Inventory Costing 3 Analysis of Inventory Classifying and Determining Inventory Merchandising firms such as grocery stores need only one inventory classification MERCHANDISE INVENTORY readyforsale inventory or goods that retailers wholesalers or distributors obtain in order to sell them for a higher price In Accounting 2101 we39ll mainly be focused on merchandising firms Manufacturing firms on the other hand need 3 inventory classifications Raw Materials basic goods that will be used in production but have not yet been placed into production as seen in Chapter 6 Section 1 61 n the textbook Work in Process manufactured inventory IN PROGRESS of completing the production process inventory that has started the production process but has not yet finished Finished goods manufactured goods that are complete and ready to be sold Determining Inventory Quantities All companies need to take or record inventory quantities at the end of each accounting period Reasons for Taking Inventory In a Perpetual System 1 Make sure inventory records are accurate 2 Determine amount of lost inventory due to wasted raw materials shoplifting or employee theft In a Periodic System 1 Determine inventory available 2 Determine cost of goods sold for the period Physical invenTory is Taken aT The END of The accounTing period when business is slow or The business is closed Determining Ownership of Goods Do all of the goods included in the count belong to the company Are there any goods owned by the company that haven39t been counted Goods in TransiT Goods in TransiT should be included in The invenTory of The company ThaT has legal TiTle To The goods Legal TiTle is deTermined by The Terms of sale From lecTure slide 68 Goods in TransiT are 1 Goods The company purchased ThaT haven39T been received 2 Goods ThaT have been sold and noT yeT delivered To The buyer Refer To illusTraTion 62 in 61 FOB free on board Shipping PoinT AS SOON AS THE SELLER DELIVERS The goods To The public carrier THE BUYER THEN OWNS THE GOODS Included in invenTory FOB DesTinaTion The SELLER STILL OWNS The goods UNTIL THE GOODS REACH THEIR DESTINATION NoT included in invenTory Consigned Goods To hold The goods of oTher parTies and Try To sell The goods for Them for a fee buT wiThouT Taking ownership of The goods ex Asking a local healTh foods sTore To consign your homemade organic shampoo You are The consignor and The healTh foods sTore is The consignee InvenTory CosTing CosT Flow AssumpTions applied To deTermine The ToTal cosT of invenTory and cosT goods sold There are 4 Types of major Types of CosT Flow AssumpTions 1 Specific IdenTificaTion when iTems can CLEARLY be idenTified serial receipT eTc Them cosT is assigned To ThaT specific iTem 2 FirsT in firsT ouT FIFO assumes ThaT The firsT or earliesT goods purchased in are The firsT goods sold ouT ex Bread expires so The bread boughT earliesT will be The bread sold earliesT 3 LasT in firsT ouT LIFO assumes ThaT The lasT or laTesT goods purchased are The firsT sold ouT ex STack of plaTes you wouldn39T reach all The way To The boTTom To geT a plaTe you39d grab The Top plaTe USlng LIFO can 65 l Significan f differences in The resulTs reporTed in The balance sheeT and The income sTaTemenT 4 Average CosTAllocaTes cosT of goods available for sale on The basis of weighTed average uniT cosT incurred Applies weighTedaverage uniT cosT To The uniTs on hand To deTermine cosT of The ending invenTory Refer To slides 623 Through 625 Lo wero fCost orMarket LCM When The invenTory39s value is lower Than The invenTory39s cosT companies can mark down The invenTory To iTs markeT value in The same period The price decline occurs MarkeT Value ReplacemenT CosT ReplacemenT CosT cosT of purchasing The same goods in The same quanTiTies from The usualsuppher Analysis of InvenTory InvenTory Turnover a raTio ThaT indicaTes how easily invenTory can be converTed inTo cash or sold by measuring The of Times average invenTory sold during The period C ost of goods sold average inventory InvenTory Turnover can be divided inTo 365 days To compuTe days in invenTory Days in InvenTory average of days invenTory is kepT 365 Inventory Turnover FIFO InvenTory LIFO InvenTory LIFO Reserve Inventory Errors are commonly caused by 1 MiscounTing or mispricing invenTory 2 NoT recognizing The Transfer of legal TiTle To goods in TransiT These errors affecT The accuracy of The balance sheeT and income sTaTemenT Refer To slide 636 for visual represenTaTion of income sTaTemenT affecTs Income Statement and Balance Sheet Effects Income Statement Effects Errors in inventory affect the calculation of cost of goods sold and net income in two periods 1 An error in ending inventory of the current period will have a reverse effect on net income of the next accounting period 2 Over the two years the total net income is correct because the errors offset each other Balance Statement Effects Inventory effects on the balance sheet is determined by Beginning Inventory C 0st of Goods Purchased Ending Inventory 2 Cost of Goods Sold
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