In this chapter students will be able to: Describe the steps in determining inventory quantities; calculate cost of goods sold and ending inventory in a perpetual inventory system using the specific identification, FIFO, and average methods of cost determination; explain the financial statement effects of inventory cost determination methods;. | Inventory Costing Determining inventory quantities Taking physical inventory Determining ownership of goods Inventory cost determination methods Specific identification Cost formulas: FIFO and average Financial Statement Effects Choice of cost determination method Inventory errors Presentation and analysis Valuing inventory at lower of cost and net realizable value Reporting and analyzing inventory Copyright John Wiley & Sons Canada, Ltd. 2 CHAPTER 6: Inventory Costing Describe the steps in determining inventory quantities. Calculate cost of goods sold and ending inventory in a perpetual inventory system using the specific identification, FIFO, and average methods of cost determination. Explain the financial statement effects of inventory cost determination methods. Determine the financial statement effects of inventory errors. Value inventory at the lower of cost or net realizable value. Demonstrate the presentation and analysis of inventory. Calculate ending inventory and cost of goods sold in a periodic inventory system using FIFO and average inventory cost formulas (Appendix 6A). Estimate ending inventory using the gross profit and retail inventory methods (Appendix 6B). Copyright John Wiley & Sons Canada, Ltd. 3 Determining Inventory Quantities All companies count their inventory at least once a year Must determine amount and value of inventory to prepare accurate financial statements The determination of inventory quantities involves Taking a physical inventory of goods on hand Determining the ownership of the goods Copyright John Wiley & Sons Canada, Ltd. 4 Taking a Physical Inventory Involves counting, weighing, or measuring each kind of inventory on hand Strong internal controls needed for an accurate inventory count: Count done by employees not normally responsible for inventory Ensure items counted exist by observation Second count by another employee Ensure all items are counted only once and nothing is missed (use pre-numbered tags) Copyright John . | Inventory Costing Determining inventory quantities Taking physical inventory Determining ownership of goods Inventory cost determination methods Specific identification Cost formulas: FIFO and average Financial Statement Effects Choice of cost determination method Inventory errors Presentation and analysis Valuing inventory at lower of cost and net realizable value Reporting and analyzing inventory Copyright John Wiley & Sons Canada, Ltd. 2 CHAPTER 6: Inventory Costing Describe the steps in determining inventory quantities. Calculate cost of goods sold and ending inventory in a perpetual inventory system using the specific identification, FIFO, and average methods of cost determination. Explain the financial statement effects of inventory cost determination methods. Determine the financial statement effects of inventory errors. Value inventory at the lower of cost or net realizable value. Demonstrate the presentation and analysis of inventory. Calculate ending inventory and cost of .
