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Inventories: Measurement

Inventories: Measurement. Sid Glandon, DBA, CPA Associate Professor of Accounting. Classification. Merchandising Inventory All costs of getting merchandise ready for sale Manufacturing Inventory Raw materials Work in process Raw materials Labor Overhead Finished goods.

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Inventories: Measurement

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  1. Inventories: Measurement Sid Glandon, DBA, CPA Associate Professor of Accounting

  2. Classification • Merchandising Inventory • All costs of getting merchandise ready for sale • Manufacturing Inventory • Raw materials • Work in process • Raw materials • Labor • Overhead • Finished goods

  3. Inventory Control • Perpetual Inventory System • Merchandise inventory • Cost of goods sold • Periodic Inventory System • Purchases • Purchase returns and allowances • Purchase discounts • Freight in

  4. Perpetual Inventory System

  5. Periodic Inventory System

  6. Year-End Adjusting Journal Entry: Periodic Inventory System

  7. Physical Goods in Inventory • Goods in transit • f.o.b. shipping point • f.o.b. destination • Consigned goods • Sales returns • Sales with buyback agreement • Sales with high rates of return

  8. Cost of Inventory • Purchases • Purchase returns • Purchase discounts • Gross method • Record discount when payment is made • Net method • Assume discount will be taken • Record interest expense on discounts not taken • Freight-in

  9. Perpetual Inventory System: Partial Income Statement

  10. Periodic Inventory System: Partial Income Statement

  11. Cost Flow Assumptions • Specific identification • Average cost • Periodic, weighted average for period • Perpetual, moving weighted average • FIFO (first-in, first-out) • LIFO (last-in, first-out) • Periodic, based on cost flow during period • Perpetual, based on each transaction

  12. Dollar-Value LIFO • Measured in terms of dollar value, not physical quantity of goods • All amounts are converted to base-year prices • A layer is formed when • Ending inventory exceeds beginning inventory (at base-year prices)

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