AFM123 Lecture Notes - Lecture 5: Net Income, Finished Good, Inventory Turnover

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM123
• Professor: David Lin

Document Summary

Lecture 5 - reporting and interpreting cost of goods. Manufacturing companies hold raw materials, work in process inventory, finished good inventory. Consignment inventory - goods held on owner behalf. Way to manage inventory (sell items for other person) (i. e. art gallery, used book store) Good in transit - inventory items being transported. Beginning inventory + purchases = cost of goods available for sale. Cost of goods available for sale - cost of goods sold = ending inventory. Identify cost of specific items that were sold. Used for companies with expensive prices (cars, etc) Assumes cost of first purchase is same as first good sold. Used for companies with spoilage (grocery stores, restaurant, etc. ) Weighted average unit cost, all will have same number for cost. Costing method will determine cost of goods sold, net income, tax expense, and inventory. Value of inventory can fall below its original cost.