Bus Adm 201 Lecture 7 Outline of Last Lecture I. reporting Revenue AccuratelyII. Cashing in on Accrual AccountingOutline of Current Lecture I. 4 Cost Flow AssumptionsII. LCMIII. Analysis of current market ratiosCurrent LectureInventory Issues4 Cost Flow Assumptions1. Specific Identifications: Tag each item with purchase info. Cost of sale equals amount on tag.2. Average cost: (Formula) $CGAS divided by Units available equals Average unit cost3. First in First out (FIFO): Items purchased first are recorded as sold first. Items purchased last go into ending inventory.4. Last in First out (LIFO): Items purchased last are recorded as sold first. Items purchased first stay in ending inventory.Lower of Cost or Market (LCM)When the value of inventory is lower than its cost - Per GAAP, companies must “write down” the inventory to its market value in the period in whichthe price decline occurs.- Market Value = Replacement Cost- Example of conservatism Analysis of Inventory - RatiosInventory turnover measures the number of times on average the inventory is sold during the period.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Inventory Turnover (equation) = cost of goods sold divided by Average InventoryDays in inventory measures the average number of days inventory is held.Days in inventory (equation) = Days in years (365) divided by Inventory