Summary of Chapter 7 – Class 12 & Class 131. Two inventory record keeping systemPerpetual Inventory System Periodic Inventory SystemUpon sales:- Record Revenue -Revenue- Record COGS - No**** (Wait until the end of accounting period)Upon purchase:- Record Purchase - Record Purchase2. What is included and excluded in the purchase cost of inventory?Included:a. Transportation cost if paid by the buyerb. Setup costsExcluded:Discount3. Equation used to back out COGS using periodic inventory system:Inventory (Begin) + Purchase – Inventory (End) = COGS4. Four inventory costing methods to determine Inventory (End) and COSGa. Specific identificationb. WAC: assuming all goods available for sale are purchased at the same time at the same price; the key is to calculate weighted average cost = dollar amount of Goods Available for Sale /units of Goods Available for SaleGoods available for sale = Inventory (Begin) + Purchasec. FIFO: old inventory is sold first; recent purchase remains in the ending inventoryd. LIFO: recent purchase is sold first; old inventory remains in the ending inventory5. LIFO liquidation: when a company sells more inventory than it purchases in a period.Consequence: a. Distorted gross profitb. higher income tax c. The advantage of having updated COGS is
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