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