Kế toán doanh nghiệp - Chapter 5: Reporting and analyzing inventories

Financial AccountingJohn J. WildSeventh Edition Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Chapter 5Reporting and Analyzing InventoriesDetermining Inventory ItemsMerchandise 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 TransitGoods Damaged or ObsoleteGoods on ConsignmentC15-*Inventory Cost Flow AssumptionsFirst-In, First-Out(FIFO)Assumes costs flow in the order incurred.Last-In, First-Out(LIFO)Assumes costs flow in the reverse order incurred.Weighted AverageAssumes costs flow at an average of the costs available. P15-*Financial Statement Effects of Costing MethodsBecause prices change, inventory methods nearly always assign different cost amounts.A15-*Financial Statement Effects of Costing MethodsAdvantages of MethodsSmoothes out price changes.Better matches current costs in cost of goods sold with revenues.Ending inventory approximates current replacement cost.First-In, First-OutWeighted AverageLast-In, First-OutA15-*Lower of Cost or MarketInventory must be reported at market value when *market is lower than cost.LCM can be applied three ways:(1) separately to each individual item.(2) to major categories of items.(3) to the whole inventory.*Market is defined as current replacement cost (not sales price).Consistent withthe conservatismconstraint.P25-*Financial Statement Effects of Inventory ErrorsIncome Statement EffectsA25-*My ending inventory count was understated!Well, that messed up my reported income!Financial Statement Effects of Inventory ErrorsBalance Sheet EffectsA25-*End of Chapter 55-*