Chapter 7 Notes
The cost of purchased inventory should include the purchase price plus payments associated with inventory such as:
-freight in -unpacking -storage -taxes -receiving -inspecting -insurance
What is a retail company? What types of inventory do they have?
-merchandise inventory -Walmart, Target -buy stuff from supplier, put on the shelf, and sell to customers
What is a manufacturing company? What types of inventory do they have?
-raw materials -WIP -finished goods
What are the 3 classifications of inventory?
1) Retail company 2) Manufacturing company 3) Service company
What are the 3 steps for reporting inventory in financial statements?
1) decided what items are included in the inventory and physical count 2) determine the cost of the units purchased or produced in the accounting period 3) use a cost flow assumption to allocate the costs of the beginning inventory plus the units purchased/produced
What is included in inventories?
1) goods held for sale to customers 2) goods in the process of production (WIP) 3) goods held for use in the production of goods or services to be made available for sale (raw materials)
What are the 4 cost flow assumptions?
1) specific identification method 2) FIFO 3) average cost 4) LIFO
How do you find Net Purchases?
Purchases + freight in - returns/allowances - discounts taken
What does FOB stand for?
free on board
Who does inventory belong to with FOB destination?
included in inventory of seller (until it gets to buyer)
Units and Cost of Goods sold are reported on the ___________
income statement
Who does inventory belong to with FOB shipping point?
inventory of buyer (when it gets on truck)
What are indirect costs associated with inventory?
manufacturing overhead
What is perpetual inventory system?
a continuous record of inventory and COGS is maintained in the inventory account everything recorded as they occur
What should be included on the balance sheet as inventory?
economic control (rather than physical possession or legal ownership)
Units remaining and cost of ending inventory are reported on the ____________
balance sheet
What is a cosignee?
buyers
What are sales returns?
buyers inventory, except for estimated return asset
What is bill and hold sale?
buyers inventory, only if goods are properly segregated from seller's inventory
What are inventories classified as?
current assets
What is FOB shipping point?
ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller
What are direct costs associated with inventory?
raw materials, direct labor
What is a cosignor?
seller
What is product financing arrangements?
sellers
What are purchase obligations?
sellers inventory
What are consignment goods?
sellers, not buyers
What is a service company? What type of inventory do they have?
un-billed services (not many inventories)
What is a periodic inventory system?
updates the accounting records for merchandise transactions only at the end of a period -inventory is not exactly known throughout the period
