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Chapter 7 - Reporting and interpreting inventories and cost of goods sold. In the previous chapter, we focused on selling goods that were purchased at the same cost per unit. This chapter demonstrates how to account for goods purchased at different unit costs. | Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Fundamentals of Financial Accounting 3e by Phillips, Libby, and Libby. Chapter 7 Reporting and Interpreting Inventories and Cost of Goods Sold PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Fred Phillips, Ph.D., CA Chapter 7: Reporting and Interpreting Inventories and Cost of Goods Sold. Types of Inventory Merchandisers . . . Buy finished goods. Sell finished goods. Manufacturers . . . Buy raw materials. Produce and sell finished goods. Raw Materials Work in Process Finished goods Merchandise inventory Materials waiting to be processed Partially complete products Completed products awaiting sale 7- Part I Merchandising companies purchase finished goods from suppliers for resale to customers. Manufacturing companies purchase raw materials from suppliers and produce and sell finished goods to customers. Part II Manufacturing companies report three types of inventory on their balance sheets: raw materials, work in process and finished goods. Merchandising companies do not have to distinguish between raw materials, work in process, and finished goods. They report one inventory number on their balance sheet labeled merchandise inventory. Part III Raw materials are the materials used to make the product. Work in process consists of units of product that are partially complete, but will require further work to be saleable to customers. Finished goods consists of units of product that have been completed, but not yet sold to customers. We focus on merchandise inventory, but be aware that the concepts we cover apply equally to manufacturers’ inventory. Balance Sheet and Income Statement Reporting 7- Part I Normally, Inventory is reported in the current asset section of the Balance Sheet because it will be converted into cash within one year. Part II When a company sells goods, it removes their cost from | Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Fundamentals of Financial Accounting 3e by Phillips, Libby, and Libby. Chapter 7 Reporting and Interpreting Inventories and Cost of Goods Sold PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Fred Phillips, Ph.D., CA Chapter 7: Reporting and Interpreting Inventories and Cost of Goods Sold. Types of Inventory Merchandisers . . . Buy finished goods. Sell finished goods. Manufacturers . . . Buy raw materials. Produce and sell finished goods. Raw Materials Work in Process Finished goods Merchandise inventory Materials waiting to be processed Partially complete products Completed products awaiting sale 7- Part I Merchandising companies purchase finished goods from suppliers for resale to customers. Manufacturing companies purchase raw materials from suppliers and produce and sell finished goods to customers. Part II .
