REPORTING AND ANALYZING INVENTORY Accounting, Fourth Edition 6 Describe the step

REPORTING AND ANALYZING INVENTORY Accounting, Fourth Edition 6 Describe the step www.phwiki.com

REPORTING AND ANALYZING INVENTORY Accounting, Fourth Edition 6 Describe the step

Rood, Tiphanie, Host has reference to this Academic Journal, PHwiki organized this Journal REPORTING AND ANALYZING INVENTORY Accounting, Fourth Edition 6 Describe the steps in determining inventory quantities. Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. Explain the financial statement in addition to tax effects of each of the inventory cost flow assumptions. Explain the lower-of-cost-or-market basis of accounting as long as inventories. Compute in addition to interpret the inventory turnover ratio. Describe the LIFO reserve in addition to explain its importance as long as comparing results of different companies. Study Objectives

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Classifying Inventory Merch in addition to ising Manufacturing Just-in-time Inventory turnover ratio LIFO reserve Specific identification Cost flow assumptions Financial statement in addition to tax effects Consistent use Lower-of-cost-or-market Taking a physical inventory Determining ownership of goods Determining Inventory Quantities Inventory Costing Analysis of Inventory Reporting in addition to Analyzing Inventory Classifying Inventory One Classification: Merch in addition to ise Inventory Three Classifications: Raw Materials Work in Process Finished Goods Merch in addition to ising Company Manufacturing Company Regardless of the classification, companies report all inventories under Current Assets on the balance sheet.

Physical Inventory taken as long as two reasons: Perpetual System Check accuracy of inventory records. Determine amount of inventory lost (wasted raw materials, shoplifting, or employee theft). Periodic System Determine the inventory on h in addition to Determine the cost of goods sold as long as the period. Determining Inventory Quantities SO 1 Describe the steps in determining inventory quantities. Involves counting, weighing, or measuring each kind of inventory on h in addition to . Taken, when the business is closed or business is slow. at end of the accounting period. Taking a Physical Inventory Determining Inventory Quantities SO 1 Describe the steps in determining inventory quantities.

Goods in Transit Purchased goods not yet received. Sold goods not yet delivered. Determining Ownership of Goods Determining Inventory Quantities SO 1 Describe the steps in determining inventory quantities. 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. Illustration 6-1 Terms of sale Ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller. Ownership of the goods remains with the seller until the goods reach the buyer. Goods in Transit Determining Inventory Quantities Goods in transit should be included in the inventory of the buyer when the: public carrier accepts the goods from the seller. goods reach the buyer. terms of sale are FOB destination. terms of sale are FOB shipping point. Review Question Determining Inventory Quantities SO 1 Describe the steps in determining inventory quantities.

Consigned Goods Goods held as long as sale by one party although ownership of the goods is retained by another party. Determining Inventory Quantities SO 1 Describe the steps in determining inventory quantities. Determining Ownership of Goods $ Unit costs can be applied to quantities on h in addition to using the following costing methods: Specific Identification First-in, first-out (FIFO) Last-in, first-out (LIFO) Average-cost Inventory Costing SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. Cost Flow Assumptions

Illustration: Assume that Crivitz TV Company purchases three identical 50-inch TVs on different dates at costs of $700, $750, in addition to $800. During the year Crivitz sold two sets at $1,200 each. These facts are summarized below. Inventory Costing Illustration 6-2 SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. “Specific Identification” Inventory Costing If Crivitz sold the TVs it purchased on February 3 in addition to May 22, then its cost of goods sold is $1,500 ($700 + $800), in addition to its ending inventory is $750. Illustration 6-3 SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. Actual physical flow costing method in which items still in inventory are specifically costed to arrive at the total cost of the ending inventory. Practice is relatively rare. Most companies make assumptions (Cost Flow Assumptions) about which units were sold. Inventory Costing SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. “Specific Identification”

Inventory Costing Illustration 6-11 Use of cost flow methods in major U.S. companies Cost Flow Assumption does not need to equal Physical Movement of Goods SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. Illustration: Data as long as Houston Electronics’ Astro condensers. Inventory Cost Flow Assumptions Illustration 6-4 (Beginning Inventory + Purchases) – Ending Inventory = Cost of Goods Sold SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. Earliest goods purchased are first to be sold. Often parallels actual physical flow of merch in addition to ise. Generally good business practice to sell oldest units first. Inventory Cost Flow Assumptions SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. “First-In-First-Out (FIFO)”

Inventory Cost Flow Assumptions Illustration 6-5 SO 2 “First-In-First-Out (FIFO)” Inventory Cost Flow Assumptions Illustration 6-5 SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. “First-In-First-Out (FIFO)” Latest goods purchased are first to be sold. Seldom coincides with actual physical flow of merch in addition to ise. Exceptions include goods stored in piles, such as coal or hay. Inventory Cost Flow Assumptions SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. “Last-In-First-Out (LIFO)”

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Illustration 6-7 Inventory Cost Flow Assumptions “Last-In-First-Out (LIFO)” Illustration 6-7 SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. Inventory Cost Flow Assumptions “Last-In-First-Out (LIFO)” Allocates cost of goods available as long as sale on the basis of weighted-average unit cost incurred. Assumes goods are similar in nature. Applies weighted-average unit cost to the units on h in addition to to determine cost of the ending inventory. Inventory Cost Flow Assumptions SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. “Average-Cost”

Illustration 6-10 SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. Inventory Cost Flow Assumptions “Average-Cost” Illustration 6-10 SO 2 Explain the basis of accounting as long as inventories in addition to apply the inventory cost flow methods under a periodic inventory system. Inventory Cost Flow Assumptions “Average-Cost” FIFO Sales $9,000 $9,000 $9,000 Cost of goods sold 6,200 6,600 7,000 Gross profit 2,800 2,400 2,000 Admin. & selling expense 330 330 330 Income be as long as e taxes 2,470 2,070 1,670 Income tax expense 140 120 110 Net income $2,330 $1,950 $1,560 Inventory balance $5,800 $5,400 $5,000 LIFO Average Comparative Financial Statement Summary LO 3 Explain the financial statement in addition to tax effects of each of the inventory cost flow assumptions. Financial Statement in addition to Tax Effects

Specific identification: must be used under IFRS if the inventory items are not interchangeable. cannot be used under IFRS. cannot be used under GAAP. must be used under IFRS if it would result in the most conservative net income. “Copyright © 2011 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request as long as further in as long as mation should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies as long as his/her own use only in addition to not as long as distribution or resale. The Publisher assumes no responsibility as long as errors, omissions, or damages, caused by the use of these programs or from the use of the in as long as mation contained herein.” Copyright

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