This website uses cookies to ensure you have the best experience. Learn more

Accounting Essay

1555 words - 7 pages

CHAPTER 6- Cost of Goods Sold and Inventory
Nature of Inventory and cost of goods sold
Inventory represents products Held for resale and is classified as a current asset on the balance sheet. When companies sell their inventory to customers, the cost of the inventory becomes an expense called cost of goods sold.

Cost of goods sold, cost of sales, or cost of merchandise sold, represents the outflow of resources caused by the sale of inventory and is the most important expense on the income statement of companies that sell goods instead of services.

Sales Revenue
(Cost of Goods Sold)
Gross Margin

Gross margin indicates the extent to which the resources ...view middle of the document...

During 2013, the company purchased goods from a supplier costing $411,000. At the end of 2013, the cost of the unsold inventory was $38,000. Compute cost of goods sold at December 31, 2013?
Beginning Inventory | $26,000 |
+ Purchases | +411,000 |
= Cost of Goods Available for Sale | 437,000 |
- Ending Inventory | -38000 |
= Cost of Goods Sold | 399,000 |

Let’s try one from the textbook that is a little more complicated. Exercise 6-42 page 341
Wilson Company sells a single product. At the beginning of the year, Wilson had 150 units in stock at a cost of $8 each. During the year, Wilson purchased 825 more units at a cost of $8 each and sold 240 units at $13 each, 210 units at $15 each and 335 units at $14 each.

Beginning Inventory $1200
+ Purchases 6600
= Cost of Goods Available for Sale 7800
- Ending Inventory((150+825-240-210-335)x $8)(1520)
= Cost of Goods Sold 6280

Inventory Systems

Perpetual Inventory System
Balances for inventory and cost of goods sold are continually (perpetually) updated with each sale or purchase of inventory. This system records both the revenue and cost side of sales transactions. Here the accounting system keeps an up-to-date record of both ending inventory and cost of goods sold at any point in time.

Periodic Inventory System
Records the cost of purchases as they occur (in an account separate from the inventory account), takes a physical count of inventory at the end of the period (periodically), and applies the cost of goods sold model to determine the balances of ending inventory and cost of goods sold.

Inventory Cost Flow Methods
An inventory costing method determines how costs are allocated to cost of goods sold and ending inventory.

Four inventory cost flow methods are:
Determines the cost of ending inventory and the cost of goods sold based on the identification of the actual units sold and in inventory. Detailed records are to be kept for each purchase and sale so that a company knows exactly which items were sold and the cost of those items.

This method is based on the assumption that costs move through inventory in an unbroken stream, with the costs entering and leaving the inventory in the same order. In other words, the earliest (oldest) purchases (the first in) are assumed to be the first sold (the first out) and the more recent purchases are in ending inventory.

Allocates the cost of goods available for sale between ending inventory and cost of goods sold based on the assumption that the most recent purchases (the last in) are the first to be sold (the first out). The most recent purchases (newest costs) are allocated to the cost of goods sold and the earliest purchases (oldest costs) are allocated to inventory.

Weighted Average allocates the cost of goods available for sale between ending inventory and cost of...

Other Papers Like Accounting

Accounting Essay

338 words - 2 pages September 21, 2014 AC 113-02 Accounting for Non=Accounting numbers Unit 8 Straight-line Method/Double Declining Method 1. The straight line method: ($300,000 – $0)/ 5= $60,000 The double declining method: (100%/5) = 20% 20%X2=40% $300,000X40%= $120,000 2. According to (Warren 2012) Straight line method of depreciation that provides for equal periodic depreciation expense over the estimated life of a fixed asset

Accounting Essay

1308 words - 6 pages indicating that the auditor’s reviewed the entirety of the financials for all minor and major misstatements which is not accurate. B- “In conformity with accounting principles generally accepted in the United States of America” rather than “are properly stated to represent the true economic conditions.” In the section for managements responsibility over the financial statements it is a requirement that the selected appropriate accounting


373 words - 2 pages Accounting -- Recording, classifying, summarizing and interpreting of financial events and transactions in an organization to provide interested parties needed financial information. Managerial Accounting -- Provides information and analysis to managers inside the organization to assist them in decision making. Public Accountants -- Provide accounting services to individuals or businesses. Auditing -- Reviewing and evaluating the information

Accounting - 2566 words

2566 words - 11 pages Benefits  Retirement benefit plan investments measured at fair value in accordance with IAS 26 Specific quantitative disclosure requirement: Accounting and Reporting by Retirement Benefit Plans  Assets for which recoverable amount is fair value less costs of disposal in accordance with IAS 36. DEFINITION OF FAIR VALUE Fair Value: measurement-date price received to sell and asset, or paid to transfer a liability, in an orderly transaction between

Accounting - 374 words

374 words - 2 pages Farooq Shah Business Accounting 1/14/13 The informative thoughts expressed in FATCA: A new era of financial transparency about privacy, oversea accounts and the new federal income tax laws are ones that I do not agree with. I don’t agree that we as Americans can work hard for our monies only to not have the privacy and courtesy to invest the way we choose wherever we choose. Under the FATCA act it requires all foreign financial

Accounting - 908 words

908 words - 4 pages amount? Answer: No. 30.What is the par or stated value of each of your company’s stocks? Answer: Common Stock : No par Value Footnote Disclosures: 31.How many footnote disclosures does your company have? Answer: Footnote Disclosure 32.How many significant accounting policies are listed under its Summary of Significant Accounting Policies? Answer: 16 33.What does it include as Cash and Cash Equivalents? Answer: Cash and Cash Equivalents

Accounting - 1742 words

1742 words - 7 pages ACCT 601– Managerial Accounting Investigating Cost Drivers Part A – Instructions The object of this exercise to gain a better understanding of overhead costs through the use of regression analysis. In particular, you will investigate which service department activities appear to drive or cause departmental overhead. The data you will use is from a proprietary database which contains detailed departmental (i.e. USED, NEW CAR, SERVICE

Accounting - 698 words

698 words - 3 pages their older competitors had no way to win over them. They believe in their intelligence and creativity. What’s more, they ignored any criticism from financial analysts since they thought that those criticisms are just from envy. On Jan. 15th, 2002, an employee called Sherron Watkins questioned Enron’s financial accounting. However, the CEO, Ken Lay never paid attention and took action on these questions.

Accounting - 1668 words

1668 words - 7 pages the reduction over and above the previous revaluation increment. The amount of $300,000 would be a reduction in revaluation surplus that is recorded as other comprehensive income. B. The manager claims, “There should be no adjustment for the decline in fair value because the recoverable amount of each parcel of land exceeds $2 000 000 at 30 June 2014”. Explain whether this is consistent with accounting standards. If a revaluation results in an

Accounting Education

306 words - 2 pages Accounting Education In the business world, accounting education is one discipline of study that all people, regardless of job position, should have some knowledge of. Its concepts can be applied to all job specialties, its importance has been promoted in recent years, and it is useful in people's everyday lives Barber, (2000). First, accounting education is important because it can be applied in all job specialties. Secretaries must use

Accounting Class

340 words - 2 pages Three Topics: - Generally Accepted Accounting Principles -The Accounting Eqaution -The Rule of Debit and Credit Advantages of applying accounting principles, rules, and procedures: * A properly prepared financial statement communicates the profits to shareholders and employees * An investor will be more apt to consider a company whose financial statements disclose all activities * A standard format for financial statements can be

Related Essays

Accounting Essay 9328 Words

9328 words - 38 pages ISSUES IN ACCOUNTING EDUCATION Vol. 22, No. 4 November 2007 pp. 685–708 China Eastern Airlines: People’s Republic of China Accounting Standards, International Financial Reporting Standards, or U.S. Generally Accepted Accounting Principles? John L. Haverty ABSTRACT: China Eastern Airlines, headquartered in the People’s Republic of China, has been listed and traded on the New York Stock Exchange since 1997. In its 2005 annual report, China

Accounting Essay 1359 Words

1359 words - 6 pages The development of financial accounting As we all known, the system of financial accounting is getting more and more perfect because of the emergency of a great amount of the financial transaction . Generally speaking, the developed speriod of accounting can divide three parts:Ancient Accounting, Contemporary Accounting and Morden Accounting. Accounting gets a better growth with the development of the world and science and

Accounting Essay 614 Words

614 words - 3 pages ADJUSTING ENTRIES BY MELANIE.KELLY7 ACCOUNTING In accounting there is many different things that you need to know, the one that we are going to go over today is adjusting entries. Adjusting entries are to ensure that revenue and expenses are properly recorded under accrual basis. Adjusting journal entries are made in the general ledger to record revenues that have not been

Accounting Essay 7464 Words

7464 words - 30 pages far and wide; they are commonplace throughout the business and accounting frontiers. Accounting for leases, however, is not so clear cut. Since there are various ways to account for leases, many companies pick and choose which they feel best suits their situation, even when this sweeps dirt under the rug along 3 the way. The financial procedures for dealing with leases should entail benefits as well as limitations to ensure each company is