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