Inventory Basics

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University of Toronto Scarborough
Financial Accounting
Liang Chen

Inventory Basics Inventory affects both the balance sheet and the income statement Determining Inventory Quantities To determine inventory quantities: (1) take a physical inventory of goods on hand, and (2) determine the ownership of goods Taking a Physical Inventory N Actually counting all goods on hand N Usually done when business is closed or slow N Internal control is used to minimize errors: the counting should be done by employees who do not have custodial responsibility for the inventory; each counter should establish the authenticity of each inventory item; there should be a second count by another employee; prenumbered inventory tags should be used; a designated supervisor should check that all inventory items are tagged and that no items have more than one tag N Units costs are then applied to the quantities in order to determine the total cost of the inventory Determining ownership of good
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