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Lecture Accounting (6th edition): Chapter 6 - Kimmel, Weygandt, Kieso

Chapter 6 - Reporting and analyzing inventory. The purpose of this chapter is: Describe the steps in determining inventory quantities; apply the cost formulas using specific identification, FIFO, and average cost under a perpetual inventory system; explain the effects on the financial statements of choosing each of the inventory cost formulas. | Reporting and Analyzing Inventory Kimmel ● Weygandt ● Kieso Accounting, Sixth Edition 6 CHAPTER OUTLINE Discuss how to classify and determine inventory. 1 Apply inventory cost flow methods and discuss their financial effects. 2 LEARNING OBJECTIVES Explain the statement presentation and analysis of inventory. 3 One Classification: Merchandise Inventory Three Classifications: Raw Materials Work in Process Finished Goods Merchandising Company Manufacturing Company ▼ HELPFUL HINT Regardless of the classification, companies report all inventories under Current Assets on the balance sheet. LEARNING OBJECTIVE Discuss how to classify and determine inventory. 1 LO 1 ACCOUNTING ACROSS THE ORGANIZATION A Big Hiccup JIT can save a company a lot of money, but it isn’t without risk. An unexpected disruption in the supply chain can cost a company a lot of money. Japanese automakers experienced just such a disruption when a 6.8-magnitude earthquake caused major damage to the company that produces 50% of their piston rings. The rings themselves cost only $1.50, but you cannot make a car without them. As a result, the automakers were forced to shut down production for a few days—a loss of tens of thousands of cars. Similarly, a major snowstorm halted production at the Canadian plants of Ford. A Ford spokesperson said, “Because the plants run with just-in-time inventory, we don’t have large stockpiles of parts sitting around. When you have a somewhat significant disruption, you can pretty quickly run out of parts.” Sources: Amy Chozick, “A Key Strategy of Japan’s Car Makers Backfires,” Wall Street Journal (July 20, 2007); and Kate Linebaugh, “Canada Military Evacuates Motorists Stranded by Snow,” Wall Street Journal (December 15, 2010). LO 1 Physical Inventory taken for two reasons: Perpetual System Check accuracy of inventory records. Determine amount of inventory lost due to wasted raw materials, shoplifting, or employee theft. Periodic System Determine the inventory on hand. . | Reporting and Analyzing Inventory Kimmel ● Weygandt ● Kieso Accounting, Sixth Edition 6 CHAPTER OUTLINE Discuss how to classify and determine inventory. 1 Apply inventory cost flow methods and discuss their financial effects. 2 LEARNING OBJECTIVES Explain the statement presentation and analysis of inventory. 3 One Classification: Merchandise Inventory Three Classifications: Raw Materials Work in Process Finished Goods Merchandising Company Manufacturing Company ▼ HELPFUL HINT Regardless of the classification, companies report all inventories under Current Assets on the balance sheet. LEARNING OBJECTIVE Discuss how to classify and determine inventory. 1 LO 1 ACCOUNTING ACROSS THE ORGANIZATION A Big Hiccup JIT can save a company a lot of money, but it isn’t without risk. An unexpected disruption in the supply chain can cost a company a lot of money. Japanese automakers experienced just such a disruption when a 6.8-magnitude earthquake caused major damage to the company that produces 50%