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Costing Inventories

Costing Inventories. Necessary when specific inventory items are not tracked from purchase to sale. Standard Methods of Inventory Costing. Example of Inventory Costing. Example: FIFO, sold 9,000 tonnes. Sell first 9,000 tonnes , equal to 1,000 + 5,000 + 3,000 (of 8,000).

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Costing Inventories

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  1. Costing Inventories Necessary when specific inventory items are not tracked from purchase to sale.

  2. Standard Methods of Inventory Costing

  3. Example of Inventory Costing

  4. Example: FIFO, sold 9,000 tonnes Sell first 9,000 tonnes, equal to 1,000 + 5,000 + 3,000 (of 8,000)

  5. Example: LIFO, sold 9,000 tonnes Sell last 9,000 tonnes, equal to 8,000 + 1,000 + (of 5,000)

  6. Example: AVCO, sold 9,000 tonnes Sell average 9,000 tonnes, equal to weighted average cost (at right >)

  7. Inventory Costing and Profits

  8. Inventory Costing Issues

  9. * If a business must write down inventories (from cost), (a) the existing inventory will be reduced, and (b) an expense will be recorded. The expense will be a separate expense account – such as “write-down of inventories” – if the loss is large, or added to COGS. Either way, profits and owners’ equity will be reduced.

  10. Dealing With Bad Trade Accounts Payable

  11. Good A/R 310,000 ????? A/R 30,000 Bad A/R 10,000 Total A/R 350,000

  12. Adjustments for Incorrect Allowances(previous example: bad A/R’s only 26,000, not 30,000)

  13. Review of Accrual Accounting ASSETS Pre-Paid Expenses Accrued Revenues LIABILITIES Accrued Expenses Unearned (Deferred) Income

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