Accounting Chapter 7

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Author:
neKen
ID:
245367
Filename:
Accounting Chapter 7
Updated:
2013-11-06 05:03:28
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Accounting
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Description:
Chapter 7 - Reporting and interpreting inventories and Cost of goods sold
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  1. consignment inventory
    refer to goods a company is holding on behalf of the goods' owner
  2. good in trasit
    inventory items being transported
  3. Formula
    COGS = beginning inventories + purchases - ending inventories

    ending inventories = beginning inventories + purchases - COGS

    Goods available for sale = beginning inventories + purchases
  4. FIFO
    • COGS (income statement) - Oldest cost
    • Inventory (Balance sheet) - Newest cost
  5. Weighted Average
    • COGS (income statement) - average cost
    • Inventory (Balance sheet) - average cost

    formula = cost of goods available for sale/ # of units available for sale = $410/50 units = $8.20 per unit
  6. Why LIFO are no longer permitted
    • 1. does not fairly represent the actual flow of costs
    • 2. reported on the balance sheet is not a fair representation of the most recent costs of inventories on hand
    • 3. can result in large distortions of reported income when older inventory costs, which are typically lower, are expenses to cost of goods sold
  7. Inventory turnover ratio
    formula = COGS / Average inventory

    • - # of times inventory turns over during the period
    • - higher ratio means faster turnover
    • - lower gross profit % has a faster inventory turnover
  8. Days to sell
    formula = 365/inventory turnover ratio

    • - average # of days from purchase to sale
    • - higher # means a longer time to sell
  9. FIFO - Perpetual and Periodic
    method of calculation are the same
  10. Weight average - Perpetual
    Add only sold unit prices and divide by only units sold to figure out cost of goods sold. Then use the goods available for sale - cost of goods sold = goods available for sale + purchase = ending inventory
  11. Weight average - periodic
    Add all the unit prices and divide by the all the unit to obtain the average unit prices. Then use the average unit prices to figure out cost of goods sold and ending inventory or goods available for sales - ending inventory = cost of goods sold

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