Notes

Intro to Financial Accounting

Intermediate Accounting

Other

Almost Exclusive

CSPN

Contact Info

Will's Notes

Introduction to Financial Accounting Home

Chapter Six - Inventory

FOB – Free on Board – when title changes hands

FOB shipping point – Seller takes goods to UPS store, but buyer pays to ship

Cost would be included in buyer’s cost of inventory

FOB destination – Seller takes goods to UPS store and pays to ship them

Payment Terms – 2/10, net 30

There is a 2% discount from the invoice/purchase price if paid in 10 days

If the discount is taken, reduce the cost of inventory by the discount

The full amount of the invoice/purchase price is due within 30 days

How to Value Inventory –

Specific Identification - Track each product separately

Think of customized cars, each has different parts/different value

Weighted-Average – Sum the value of all same units and divide by quantity

Think about a barrel of nails: $10 total, 1,000 nails = $0.01 per nail

First-In, First Out (FIFO) – Sell the first product we got in first

Think about a pile of mail – you would take the first piece you laid down – that is the letter on the bottom of the stack
End up reading old mail first

Last-In, First Out (LIFO) – Sell the first product you got in last

Same pile of mail – you would take the last piece you laid down – that is the letter on the top of the stack
End up reading the new mail first, old mail gets older

Inventory Systems –

Perpetual Inventory

Every time a sale is made, we remove the inventory from the books and record cost of goods expense
Every time we purchase inventory, we increase the inventory account
We are constantly keeping track of how much inventory we have

Periodic Inventory

Don’t calculate cost of goods sold until the end
At end of the year we count all of the inventory
1.) Beg Inventory + Purchases = Available Inventory
2.) Available Inventory – What we have left = Cost of Goods Sold

Introduction to Financial Accounting Home

Simple and to the Point