Chapter 5 T.Hend Alajaji. Objectives : 1. Inventory. 2. Explain how to report inventory and cost of goods sold. 3. Compute costs using four inventory.

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Presentation transcript:

Chapter 5 T.Hend Alajaji

Objectives : 1. Inventory. 2. Explain how to report inventory and cost of goods sold. 3. Compute costs using four inventory costing methods

Ch5 InventoryGoods Raws Materils Merchandis inventory Manufactur e inventory Raw Materials Work in Process Finished goods Merchandising Inventory = Balance Sheet Cost of Goods = Income Statement

 inventory is a stock of goods or other items owned by a firm and hold for sale or for processing before being sold, as part of a firm’s ordinary operations.  Goods or Raw material owned by the company.

Merchandisers...  Buy finished goods.  Sell finished goods. Manufacturers...  Buy raw materials.  Produce and sell finished goods. Raw Materials Work in Process Finished goods Merchandise inventory Materials waiting to be processed Partially complete products Completed products awaiting sale 7-6

Explain how to report inventory and cost of goods sold in financial statement. 7-7

7-8

BI + P – CGS = EI American 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.

Beginning Inventory $4,800 + Goods Available for Sale $15,000 Purchases $10,000 Ending Inventory $6,000 (Balance Sheet) Cost of Goods Sold $9,000 (Income Statement)

Compute costs using four inventory costing methods.

First-in, first-out (FIFO) Last-in, first-out (LIFO) Weighted average

Consider the following information This 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 $95, the total cost of those items ($ = $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 Identification May 5 $75 cost May 3 $70 cost May 6 $95 cost 7-13

FIFOLIFOWeighted average May 6 $95 cost May 5 $75 cost May 3 $70 cost May 6 $95 cost May 5 $75 cost May 3 $70 cost May 6 $95 cost May 5 $75 cost May 3 $70 cost Sold Still there Sold Still there Sold Still there $240 3 = $80 per unit 7-14

Summary

Weighted Average Weighted Average Cost = Cost of goods Available for Sale Number of Units Available for Sale Weighted Average Cost = $ units = $8.20 per unit

15 $ $8.20

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