Inventories: Measurement8Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights

Those assets that a company:1. Intends to sell in the normal course of business. 2. Has in production (work in process) for future sale. 3. Uses currently in the production of goods to be sold (raw materials).8-3Types of InventoriesTypes of InventoryMerchandise InventoryGoods acquired for resaleManufacturing Inventory•Raw Materials •Work-in-Process •Finished Goods1.8-4Inventory Cost FlowsRaw Materials Work in Process Finished Goods
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Inventories: Measurement8Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights Inventories: Measurement 8 Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 8-2Inventory Those assets that a company: 1. Intends to sell in the normal course of business. 2. Has in production (work in process) for future sale. 3. Uses currently in the production of goods to be sold (raw materials). 8-3Types of Inventories Types of Inventory Merchandise Manufacturing Inventory InventoryGoods acquired for •Raw Materials resale •Work-in-Process •Finished Goods 1 8-4Inventory Cost Flows Raw Finished Work in Materials Goods Process $XX (4) $XX $XX (7) (1) $XX $XX $XX (8) Direct Labor Cost of Good (2) $XX $XX (5) Sold Manufacturing $XX Overhead (3) $XX $XX (6) (1) Raw materials purchased (2) Direct labor incurred (3) Manufacturing overhead incurred (4) Raw materials used (5) Direct labor applied (6) Manufacturing overhead applied (7) Work in process transferred to finished goods (8) Finished goods sold 8-5Learning Objective Explain the difference between a perpetual inventory system and a periodic inventory system. 8-6Inventory Methods Two accounting systems are used to record transactions involving inventory: Perpetual Periodic InventoryInventory System System The inventory The inventory account is account is continuously adjusted at the end updated as of a reporting purchases and cycle. sales are made. 2 8-7 Perpetual Inventory System Matrix, Inc. purchases on account $600,000 of merchandise for resale to customers.GENERAL JOURNAL Date Description Debit Credit 600,000 2006 Inventory Accounts Payable 600,000 Returns of inventory are credited to the inventory account.Discounts on inventory purchases can be recorded using the gross or net method. 8-8 Perpetual Inventory System Matrix, Inc. sold, on account, inventory with a retail price of $820,000 and a cost basis of $540,000, to a customer.GENERAL JOURNAL Date Description Debit Credit Accounts Receivable 820,000 2006 820,000 Sales Cost of Goods Sold 540,000 540,000 Inventory 8-9 Periodic Cost of Goods Sold Equation Beginning Inventory + Net Purchases Cost of Goods Available for Sale ...