Mizzou ACCTCY 2037 - Exam 2 Outlines (35 pages)

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Exam 2 Outlines



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Exam 2 Outlines

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Pages:
35
School:
University of Missouri
Course:
Acctcy 2037 - Accounting II

Unformatted text preview:

Chapter 18 Reporting Inventory Inventory describes assets that are o Ready for sale o Being produced for sale o Ready to use in the production process Retail companies have merchandise inventories o Purchase inventory for resale from wholesalers or manufacturers Manufacturers o Raw materials inventory o Goods in process inventory o Finished goods inventory Perpetual inventory system o Keeps a continuous record of the cost of inventory on hand and the cost of inventory sold Periodic inventory system o When it does not need to keep a continuous record of the inventory on hand and sold o Determines inventory on hand by a physical count at the end of the accounting period Specific identification method o A company assigns a specific cost what it paid for that specific unit to each unit of inventory it sells and to each unit that it holds in its ending inventory Reporting Inventory on the Balance Sheet o A company using GAAP is required to base its inventory reporting on two accounting concepts Historical cost concept A company records its transactions on the basis of dollars exchanged aka the cost in the transaction Once the company records a transaction it usually retains the cost involved in the transaction in its accounting records Critics question the relevance of historical cost because manufacturing a product adds more value Supporters o say that until the company has a transaction with a buyer at an agreed price there is insufficient evidence to support any other value than the cost o companies earn a profit by selling not by manufacturing items or putting them on the shelves o Reliability of historical costs and GAAP s emphasis on conservatism outweigh any potential increase in relevance that would be gained from using any other measure of value such as selling price Matching concept To determine its net income for an accounting period a company computes the total expenses involved in earning the revenues of the period and deducts them from the revenues earned



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