NOVA ACC 211: - Lecture Notes (52 pages)

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Lecture Notes



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Lecture Notes

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Lecture Notes


Pages:
52
School:
Northern Virginia Community College
Course:
Acc 211: - Principles Of accounting I

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Accounting 211 Chapter 6 Inventories CHAPTER 6 In INVENTORIES this chapter we will learn to 1 2 3 4 5 6 Describe steps in determining inventory quantities Explain the basis of accounting for inventories and describe the inventory cost flow methods Explain the financial statements and the tax effects of each inventory cost flow method Explain the lower of cost or market basis of accounting for inventories Indicate the effects of inventory errors on the financial statements Compute and interpret inventory turnover EFFECTS OF INVENTORY In the balance sheet of merchandising and manufacturing companies inventory is a significant current asset In the income statement inventory is vital in determining results Gross profit is determined by inventory Net sales less cost of goods sold watched by management owners and others CHARACTERISTICS OF MERCHANDISE INVENTORY Merchandise inventory is 1 Owned by the company 2 In a form ready for sale Classifying Inventory In A Manufacturing Environment Manufacturing inventories may not yet be ready for sale Classified into three categories 1 Finished goods ready for sale 2 Work in process various stages of production not completed 3 Raw materials components on hand waiting to be used Determining Inventory Quantities To prepare financial statements we must determine 1 the number of units in inventory by taking a physical inventory of goods on hand physical inventory by counting weighing or measuring 2 Who owns the goods the owner or a consignee Determining Cost Of Goods On Hand 3 applying unit costs to the total units on hand for each item 4 total the cost of each item of inventory to determine total cost of goods on hand Taking A Physical Inventory Internal control principles for inventory 1 Segregation of duties counting by employees who don t have the custodial responsibility for the inventory 2 Establishment of responsibility each counter should establish the authenticity of each inventory item Taking A Physical Inventory 3 Independent



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