ACTG 2200 Lecture 5: Week 5 & 6 Notes

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CH. 6
Inventory
Merchandise (buying products)
o Wholesaler
o Retailer
Manufacturing (building products)
o Raw material
o Work in progress (labor)
o Finished goods (overhead)
COGS Model
Beginning inventory + purchases = Cost of goods available for sale
COGAS ending inventory = COGS
Inv. + purchases = COGS + ending inv.
Cost Flow Assumptions
1. FIFO
a. Whatever the price of first product, that is value of COGS
2. LIFO
a.
3. Weighted Average
Lower of Cost or Market (LCM)
If held onto inventory too long, it will lose value
Inv. Turnover ratio = COGS / Avg. Inv.
How quickly turning the product around
AR Turnover = Sales on acct / avg. accts receivable
Equations
Sales Rev COGS = Gross Profit
Gross Profit operating expenses = net income
Long Term Assests
Tangible
o Land, buildings, equipment, natural resources
Intangible
o Patent, copyright, franchises, trademark, goodwill
Bulk Purchase/Basket Purchase
Pay $1 million for Land, Building, and Equipment
o Land = $200,000
2/12 of $1.2 million
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