Chapter 6
Merchandising Companies
companies that sell products that someone else has manufactured
Cost of Goods Sold
Cost of the inventory that was sold during the period. - EXPENSE, in the income statement -largest expense in the income statement
Finished goods
Inventory consists of items for which the manufacturing process is complete
Raw materials
Inventory includes the cost of components that will become part of the finished product but have not yet been used in production
inventory
Items a company intends for sale to customers in the ordinary course of business. also items held for resale
Ending inventory
Largest asset in the balance sheet
Work-in-process
The products that have been started in the production process but are not yet complete at the end of the period.
Why is inventory a current asset in the balance sheet?
because it represents a valuable resources to the company and the current because the company expects to convert it to cash in the near term.
inventory for a manufacturer
finished goods, work in process, raw materials
FOB destination
ownership of the goods remains with the seller until the goods reach the buyer
Manufacturing companies
produce the inventories they sell, rather than buying them in finished form from suppliers. Ex. Apple, Coca-Cola, Harley-Davidson
Retailers
purchase inventory from manufacturers or wholesalers and then sell this inventory to end users.
Wholesalers
resell inventory to retail companies or to professional users
FOB shipping point
title passes when the seller ships the inventory