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Lecture Principles of financial accouting - Chapter 6: Inventories and cost of sales

After completing this chapter you should be able to: Identify the items making up merchandise inventory, identify the costs of merchandise inventory, analyze the effects of inventory methods for both financial and tax reporting, analyze the effects of inventory errors on current and future financial statements,. | Chapter 6 INVENTORIES AND COST OF SALES McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 6: Inventories and Cost of Sales DETERMINING INVENTORY ITEMS Merchandise inventory includes all goods that a company owns and holds for sale, regardless of where the goods are located when inventory is counted. Items requiring special attention include: Goods in Transit Goods Damaged or Obsolete Goods on Consignment C1 Merchandise inventory includes all goods that a company owns and holds for sale, regardless of where the goods are located when inventory is counted. We must pay special attention to include inventory that we own but that is in transit or on consignment. We should also consider the condition of inventory that is damaged or obsolete when determining a cost for the inventory. FOB Destination Point Public Carrier Seller Buyer GOODS IN TRANSIT Public Carrier Seller Buyer FOB Shipping Point Ownership passes to the buyer here. C1 . | Chapter 6 INVENTORIES AND COST OF SALES McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 6: Inventories and Cost of Sales DETERMINING INVENTORY ITEMS Merchandise inventory includes all goods that a company owns and holds for sale, regardless of where the goods are located when inventory is counted. Items requiring special attention include: Goods in Transit Goods Damaged or Obsolete Goods on Consignment C1 Merchandise inventory includes all goods that a company owns and holds for sale, regardless of where the goods are located when inventory is counted. We must pay special attention to include inventory that we own but that is in transit or on consignment. We should also consider the condition of inventory that is damaged or obsolete when determining a cost for the inventory. FOB Destination Point Public Carrier Seller Buyer GOODS IN TRANSIT Public Carrier Seller Buyer FOB Shipping Point Ownership passes to the buyer here. C1 Transportation costs are sometimes included in the cost of Merchandise Inventory. The FOB terms designate when title passes and who pays the transportation costs. FOB stands for “Free On Board.” So, if the shipping terms are Free On Board shipping point, that means that ownership transfers from the seller to the buyer when the seller provides the goods to the carrier. It also means the buyer will pay all transportation costs. In this case, the transportation costs will be added to the merchandise inventory account. On the other hand, if the shipping terms are Free On Board destination, that means that ownership transfers from the seller to the buyer when the buyer receives the goods. It also means the seller will pay the transportation costs. GOODS ON CONSIGNMENT Merchandise is included in the inventory of the consignor, the owner of the inventory. Consignor Consignee Thanks for selling my inventory in your store. C1 Goods on consignment are goods that we own, but that are on display for .