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ACG 2021

ACG 2021. Chapter 6 – Inventory Summary. Formula - 1. Beginning Inventory + Purchases -------------------------------- Goods Available for Sale - Ending Inventory --------------------------------- Cost of Goods Sold. Formula - 2. Beginning Inventory + Purchases

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ACG 2021

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  1. ACG 2021 Chapter 6 – Inventory Summary

  2. Formula - 1 • Beginning Inventory • + Purchases • -------------------------------- • Goods Available for Sale • - Ending Inventory • --------------------------------- • Cost of Goods Sold

  3. Formula - 2 • Beginning Inventory • + Purchases • -------------------------------- • Goods Available for Sale • - Cost of Goods Sold • --------------------------------- • Ending Inventory

  4. Formula - 3 • Sales • - Cost of Goods Sold • ------------------------- • Gross Profit • Ratio: Gross Profit % • Gross Profit / Sales

  5. Inventory Transactions • Purchase Inventory Inventory xxxxx Cash or A/P xxxxx • Sale of Inventory Cash or A/R xxxx Sales xxxxx Cost of Goods Sold xxxx Inventory xxxxx How do you know what the cost is?

  6. CGS/Inventory Cost Methods • Specific Unit • Each inventory item can be uniquely identified • Average Cost • FIFO • First In First Out • Sold Units cost (CGS) determined by 1st units purchased • Ending Inventory cost determined by last units purchased • LIFO • Last In Last Out • Sold Units cost (CGS) determined by last units purchased • Ending Inventory cost determined by 1st units purchased

  7. Inventory Accounting Principle • Lower of Cost or Market • Market = Replacement Cost • If Replacement Inventory < Inventory Cost • Adjust Ending Inventory (doesn’t matter which method was used to compute cost) • Reduce Inventory Balance • Increase CGS Balance CGS xxxx Inventory xxxxx

  8. Ratios • Gross Profit % • Gross Profit / Sales • Inventory Turnover • Cost of Goods Sold / Average Inventory

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