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Wiley CPAexcel Exam Review 2014 Focus Notes: Financial Accounting and Reporting by Ray Whittington

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Focus on: Inventories—Module 10

INVENTORIES

Goods in Transit

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Abnormal costs expensed in current period instead of being included in inventory:

  • Idle facility expense
  • Wasted materials in production
  • Double freight when items returned and redelivered

Cost of Goods Sold (COGS)

Beginning inventory

+ Net purchases
= Cost of goods available for sale
– Ending inventory
= Cost of goods sold (COGS)

Inventory Errors

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Periodic versus Perpetual

Periodic Perpetual
Buy merchandise Purchases Inventory
Accounts payable
Accounts payable
Sell merchandise Accounts receivable Accounts receivable
Sales
Sales
COGS sold (COGS)
Inventory
Record COGS Ending inventory (count)
COGS (plug)
Purchases (net amount)
Beginning inventory (balance)

First in, first out (FIFO)—Same under either method

Last in, first out (LIFO)—Different amounts for periodic and perpetual

Average—Different amounts for periodic and perpetual

Periodic—Weighted average

Inventory Valuation Methods

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FIFO Application—Valuing Cost Of Sales and Ending Inventory

The earliest purchased goods ...

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