1. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Inventory Cost Flow Identical units purchased at different unit costs during a period When units are sold, it is necessary to determine the cost of units sold. Cost of units sold can be determined using a cost flow assumption. Units _________ Units ____

2. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Specific Identification If the merchandise can be identified with a specific purchase, the specific identification method can be used Each unit of merchandise can be identified with a specific purchase price Only practical if each unit has a unique identification number (e.g., VIN for an automobile)

3. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Three Inventory Methods _______, _______ (________) ____________

4. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. First-In, First-Out (FIFO) One unit is sold on May 30 for $20

5. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Last-In, First-Out (LIFO) One unit is sold on May 30 for $20 Balance Sheet May 31 Purchases May 10 May 18 May 24

6. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Average Cost One unit is sold on May 30 for $20 Balance Sheet May 31 Purchases May 10 May 18 May 24

7. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 7 Compare and contrast the use of the three inventory costing methods

8. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Comparing Methods - Rising Prices METHODI/S EFFECTB/S EFFECTRESULT FIFO Lower COGS Higher gross profit Inventory shows replacement cost Benefit lost in higher future costs LIFO Higher COGS Lower gross profit Lower inventory valuesMatches current cost with current revenue AVERAGE Average (middle) gross profit Average inventory valueCompromise between LIFO & FIFO

9. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 8 Describe three inventory cost flow assumptions and how they impact the financial statements

10. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Balance Sheet Presentation Exhibit 8: Receivables and Inventory in Balance Sheet

11. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Lower of Cost or Market Exhibit 9: Determining Inventory at Lower of Cost or Market

12. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Reporting Receivables and Inventory Accounts Receivable Classified as a _______ asset if collection is expected within ________. Reported at _____ realizable value: _______ – _______________ _________________ Inventory Damaged inventory is reported at the _____ realizable value Net realizable value = _________ – _________________ Reported at _______________________ (_____)

13. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. End of Chapter 6