ACG 3103 Chapter 7 (Intermediate Financial Accounting)

PS: Assets have a normal debit balance, so, for example, in raw materials the credit balance is Materials used since its decreasing the amount of raw materials since its being used

PS: COGM = Beginning WIP Inventory + Direct materials Used + Direct Labor + Manufacturing Overhead - Ending WIP Inventory

PS: COGS = Beginning FG Inventory + COGM - Ending FG Inventory

1) COGS = Beginning FG Inventory + COGM - Ending FG Inventory

2) {Shown in Image}

Perpetual Inventory System: Continously tracks and updates the inventory account

Periodic Inventory System: Counts the Inventory at the end of each period (They Get the Beginning Invnetory + Purhcases - Ending Inventory = COGS, to find the COGS)

1) Perpetual Inventory System
Dr Inventory
__Cr Cash or Accounts Payable

2) Periodic Inventory System
Dr Purchases
__Cr Cash or Accounts Payable

Purchase (Purchase Returns, Purchase Discounts, Purchase Allowances) DO NOT use contra (special) accounts

Sales (Sales Returns, Sales Discounts, Sales Allowances) ALWAYS use contra (special) accounts. (PS: The contra-account used is the same for both perpetual and periodic)

*Remeber that the Gross Method assumes that the customer will NOT take it, while the Net method assumes the customer WILL take it!

Freight in: The transportation cost of a good from the supplier to the ware hourse

Freight out: The transportation cost of a good from the warehouse to the customer

FOB Shipping Point-Buyer owns goods during shipping. The buyer pays for shipping

FOB Destination-Sellers owns good until delivered to buyer. The seller pays for shipping.

(REMEMBER to take into account whether its FOB Shipping Point or FOB Destination Point)

(REMEMBER to take into account whether its FOB Shipping Point or FOB Destination Point)

1) Shipping product to the final customer costs a product or period cost? (Frieght Out)
-Period Cost

2) Shipping cost from the supplier to the warehouse a product or period cost? (Freight In)
-Product Cost

Interest costs related to financing inventory purchases a product or period cost?

IS a Period COST!!

1) What are they for:
-They are to find the Ending Inventory Value and the Cost of Goods Sold

2)
If the cost of units are the same, then just do

Ending Merchandise Inventory = Number of units on hand x Unit Cost
Cost of Goods Sold = Number of units sold x Unit Cost

If the cost of units are NOT the same, then do either

The four types of methods are
1)Specific Identification
2)First-in, First-out (FIFO)
3)Last-in, First-out (LIFO)
4)Weighted-average

An inventory costing method which is based on the cost of a specific unit of inventory. So, that specific unit has an easily identifiable unit that has a specific cost attached to it.

An inventory costing method.

The first units purchased are assumed to be the first unit sold. So, the first unit sold has the Cost attached to the first unit purchased.

*Understand on the table why it is FIFO

An inventory costing method.

The last units purchased are assumed to be the first units sold. So, the first unit sold has the Cost attached to the last unit purchased.


*Understand on the table why it is LIFO

(aka moving average method)
An inventory costing method.

Weighted-average unit cost = Total Cost of goods available for sale / Number of units available for sale


*Understand on the table why it is weighted-average method

*PS: The income tax will also be higher if the Net Income is Higher.

1) The LIFO Rervse Account (also more commonly called the "Allowance to Reduce Inventory to LIFO account") is the difference between the value of Inventory from using FIFO vs LIFO.

2)
-It is common for companies to use FIFO for internal purposes, while using LIFO for tax and external purposes.
-So, in order to have LIFO for external reporting and FIFO for internal reporting, do they need to have a use a LIFO Reserve account (Also called a " Allowance to Reduce Inventory to LIFO account") to go from their their internal financials to their external.

3)
LIFO Effect: Is defined as in ANY change to this LIFO reserve account.

LIFO liquidation happens when a company using the Last-In, First-Out (LIFO) inventory method sells more inventory than it acquires during a period, dipping into older, cheaper inventory "layers" to fulfill current sales

(When it says "layers" the text book has aa picture to visualize it. In 2025, the invnetory cost \$10, then in the period before that, it cost \$9) (So, the layers are based on acccounting periods)