Nguyên lý kế toán - Chapter 7: Reporting and interpreting inventories and cost of goods sold

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinChapter 7Reporting and Interpreting Inventories and Cost of Goods SoldPowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Fred Phillips, Ph.D., CATypes of InventoryMerchandisers . . .Buy finished goods.Sell finished goods. Manufacturers . . .Buy raw materials.Produce and sell finished goods.Raw MaterialsWork in ProcessFinished goodsMerchandise inventoryMaterials waiting tobe processedPartially complete productsCompleted products awaiting sale 7-3Balance Sheet and Income Statement Reporting7-4Cost of Goods Sold EquationBI + P – CGS = EIAmerican Eagle Outfitters’ beginning inventory was $4,800. During the period, the company purchased inventory for $10,200. The cost of goods sold for the period is $9,000. Compute the ending inventory. 7-5Cost of Goods Sold EquationBeginningInventory$4,800+Goods Availablefor Sale$15,000Purchases$10,000EndingInventory$6,000StillHere(Balance Sheet)Cost ofGoods Sold$9,000Sold(Income Statement)7-6Inventory Costing MethodsConsider the following informationThis method individually identifies and records the cost of each item sold as part of cost of goods sold. If the items sold were identified as the ones that cost $70 and $95, the total cost of those items ($70 + 95 = $165) would be reported as Cost of Goods Sold. The cost of the remaining item ($75) would be reported as Inventory on the balance sheet at the end of the period. Specific IdentificationMay 5$75 costMay 3$70 costMay 6$95 cost7-7Inventory Costing MethodsFIFOLIFOWeighted averageMay 6$95 costMay 5$75 costMay 3$70 costMay 6$95 costMay 5$75 costMay 3$70 costMay 6$95 costMay 5$75 costMay 3$70 costSoldStill thereSoldStill thereSoldStill there$2403=$80per unit7-8Financial Statement Effects7-9Financial Statement EffectsAdvantages of MethodsFirst-In, First-OutWeighted AverageLast-In, First-Out7-10The value of inventory can fall below its recorded cost for two reasons: it’s easily replaced by identical goods at a lower cost, or it’s become outdated or damaged.Lower of Cost or MarketWhen the value of inventory falls below its recorded cost, the amount recorded for inventory is written down to its lower market value. This is known as the lower of cost or market (LCM) rule.7-11Lower of Cost or MarketRecord2400 items @ $201,000 items @ $1501,000 items @ $165Analyze17-12Inventory PurchasesAmerican Eagle Outfitters purchases$10,500 of vintage jeans on credit.1Analyze2Record7-13Transportation CostAmerican Eagle pays $400 cash to a trucker whodelivers the $10,500 of vintage jeans to one of its stores.1Analyze2Record7-14Purchase Returns and AllowancesAmerican Eagle returned some of the vintage jeans to thesupplier and received a $500 reduction in the balance owed.1Analyze2Record7-15Purchase DiscountsAmerican Eagle’s vintage jeans purchase for $10,500 had terms of 2/10, n/30. Recall that American Eagle returned inventory costing $500 and received a $500 reduction in its Accounts Payable. American Eagle paid within the discount period.1Analyze2Record7-16Inventory Turnover Analysis7-17End of Chapter 7