Chapter 8 ACC - Lecture notes 8 PDF

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CHAPTER 8 NOTES FOR TEST...

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CHAPTER 8: `Merchandising Inventory-

Wholesale & retail companies purchase goods in finished form

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Intermediaries in the process of moving goods from the manufacturer to the end-user

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**the cost of merchandise inventory includes the purchase price plus any other costs necessary to get the goods in the condition and location for sale**

Manufacturing Inventories-

actually produce the goods they sell to wholesalers, retailers, other manufacturers, or consumers

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Raw materials o Cost of component that becomes part of the finish product

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Work-in-progress inventory o Not yet complete in the manufacturing process o Cost of labor, cost of raw materials, manufacturing overhead(goods) o Overhead costs include electricity, utility costs, deprecation of equipment

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Finished Goods o Have been completed but not yet been sold o Reached final stage and await sale to a customer o Cost includes all the raw materials and work in progress used in production

CHAPTER 8:

Perpetual Inventory System: -

Inventory account is continually adjusted for each change in inventory

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Whether its caused by a purchase, a sale, or a return of merchandise by the company to its supplier

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Designed to trace inventory qualities from their acquisition to their sale

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Determines how many items are sold during a period

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Cost of the inventory

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Decreasing inventory and increasing cost of goods sold (perpetually) each time goods are sold

Periodic Inventory System: -

Not designed to track either the quantity or cost of merchandise

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adjusted at the end of a reporting period

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beg inv + net purchases –end inv. = COGS

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assumes that all inventory qualities not on hand at the end of the period were sold

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allocated cost of goods sold available for sale between ending inventory and cost of goods sold (periodically) at the end of the period

Physical Units Included in Inventory: -

Goods in Transit o End of reporting period ensure proper inventory cut off o Ownership must be determined for goods that are in transit between the company and its customers o AND between the company and its suppliers

CHAPTER 8: -

Sales Returns o Seller must be able to estimate those returns before revenue can be recognized o Debit to sales returns and credit to refund liability

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Goods on Consignment o Another company to sell its product under consignment o Transferred to a another company (the consignee) but the transferor(consignor) retains legal title o Doesn’ tsell they give it back if they do sell

Freight-in On Purchases: -

Included in the cost of inventory (perpetual)

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Freight costs are recorded in a temporary account called fright in

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Added to total purchases in determining net purchases for inclusion in cost of goods sold

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Shipping costs are not included in the cost of inventory

Purchase Returns: -

When merchandise is returned the buyer records a purchase return

Purchase Discounts: -

Quick payment discounts because they represent reductions in the amount to be paid by the buyer in the event payment is made within a specified period of time

Cost Flow Assumption Methods: -

Specific Identification  Selling unique, expensive products with low sales volume which makes it easy and economically feasible to associate it with its actual cost

1) Average Cost a. Assumes that cost of goods sold & ending inventory consist of a mixture of all the goods available for sale b. Average unit cost weighted by the # of units acquired at the various unit costs 2) FIFO a. Units sold are the first units acquired b. Beg inv. Is sold first then purchases 3) LIFO

CHAPTER 8: o Units sold are the most recent units purchases...