Accounting for Manufacturing

Size: px
Start display at page:

Download "Accounting for Manufacturing"

Transcription

1 Accounting for Manufacturing 1 Accounting for Manufacturing and Inventory Impairments TABLE OF CONTENTS Accounting for manufacturing 2 Production activities 2 Production cost flows 3 Accounting for production activities 4 Acquiring production resources 4 Using resources during production 5 Completing production 10 Accounting for cost of sales 11 Accounting for inventory impairments 14

2 2 Navigating Accounting ACCOUNTING FOR MANUFACTURING This section extends our study of accounting to manufacturing companies. In contrast to retailers like The Gap and Home Depot, that largely purchase the goods they sell to customers, manufacturers like General Electric and Intel produce most of the goods they sell. We will use the terms production and non-production to describe various business activities. Production activities are those associated with producing or manufacturing products. Nonproduction are all other activities of the business. For example, a company may purchase a computer that will be used in manufacturing products: production equipment. The same company may purchase another computer that will be used in the marketing department: non-production equipment. This distinction is important for accounting purposes, as you will see. The section is organized as follows: Production activities Production cost flows Accounting for production activities Acquiring production resources Using resources during production Completing production Cost of sales Production activities The key difference between manufacturers and retailers operations is manufacturers produce the goods they sell:

3 Accounting for Manufacturing 3 For reasons that will become apparent when we start recording entries, resources acquired for production are classified into three groups: (1) Resources held in inventory until they are needed in production, such as materials and supplies (2) Resources gradually used up (depreciated or amortized) over time during production, such as PP&E and patents. (3) Resources acquired as they are used in production, such as labor and parts from suppliers arriving just-in-time for production. Production cost flows Production accounting provides considerable information associated with these business activities for internal decisions such as assessing whether production costs and processes are under control, determining and controlling inventory levels, and pricing products. Accountants also determine cost of sales for financial reporting. To this end, they need to determine the cost of each product sold through a process called product costing. At the big picture level, this

4 4 Navigating Accounting involves recording costs as they are incurred; flowing these costs through accounts associated with the above activities; and assigning them to specific products. The details associated with assigning costs to specific products are far beyond the scope of this chapter. Here, we will abstract from these details by describing how the aggregate costs (for all products produced) flow through three types of inventory accounts associated with these activities: materials inventory, work-in-process inventory (WIP), and finished goods inventories (FGI). The figure below illustrates how these inventory types relate to production activities and the four-step process accountants use to track resource costs through these activities: (1) Record the costs of production resources as they are acquired. (2) Assign the costs of production resources to work-in-process (WIP) as resources are used. (3) Transfer costs from WIP to finished goods inventory (FGI) when production is completed. (4) Transfer costs from FGI to cost of sales when goods are delivered to customers or to deferred cost of sales or consignment inventories when revenue recognition is deferred at delivery. Accounting for production activities Next we will discuss in broad terms the accounting issues that arise at each of these steps and record entries that capture the general flow of production costs. In doing so, we will abstract considerably from the detailed entries that are typically recorded, an understanding of which is not needed to interpret financial statements. Acquiring production resources Most of the entries that record the costs of acquired production resources are similar to entries studied earlier. For example, recording the purchase of raw materials is similar to recording the purchase of merchandise for resale except the name of the inventory account differs slightly (e.g., raw

5 Accounting for Manufacturing 5 materials inventory instead of merchandise inventory). Similarly, recording the purchase of PP&E is the same for production and non-production PP&E. By contrast, recording the costs of resources does differ from earlier entries, such as labor and electricity that are incurred as these resources are used in production. These costs are assigned to work-in-process when they are incurred. It will be much easier to explain the related record keeping after we describe these events in more detail in the next section. Examples Smart Company acquires two resources during fiscal 2013 prior to using them in production: purchased $100 of parts and materials inventories on account and $1,000 of production-related PP&E for cash. Here are the related entries: Smart Company: Resources acquired prior to production Purchase parts and materials on account Parts and materials inventories $100 Accounts payable $100 Purchase production-related PP&E with cash PP&E (historical cost) $1,000 Cash and cash equivalents $1,000 These entries are similar to those that would be recorded by a retailer, except the parts and materials account would be called finished goods inventories or simply inventories. The entry to record the purchase of production-related PP&E is identical to the entry to record non-production-related PP&E, such as the corporate headquarters. However, as we shall see, the entries to record related depreciation differ significantly. Using resources during production As resources are used during production, their costs are assigned to work-in-process. As indicated at the top of the next page, first costs are classified as direct or indirect. Direct costs can be connected very precisely to specific products. For example, they include compensation costs for employees who work exclusively on one product or on a group of similar products and the costs of parts and materials that can be traced to specific products. By contrast, indirect costs can t be traced precisely to products. For example, they include utilities and supervisor costs that can t be traced precisely to products. While indirect costs can t be associated precisely with products, they can often be associated imprecisely to products through a product costing process.

6 6 Navigating Accounting Recording direct costs to WIP Direct costs are transferred to WIP when resources that were previously acquired are used in production. Additionally, direct costs associated with resources that were not stored prior to production, such as direct labor, are recorded to WIP accounts as these costs are incurred. Large manufacturing companies that produce thousands of products have numerous WIP accounts. Information from these accounts is used for internal decisions such as inventory control and product pricing. For financial accounting, these accounts are combined into a single WIP account that is disclosed on the balance sheet or in footnotes. As indicated earlier, here we will use a single WIP account that aggregates the activity in the separate product accounts.

7 Accounting for Manufacturing 7 Examples Smart Company has two costs that can be traced directly to the production of specific products: parts and materials inventories used during production and labor costs for employees whose work on assembly lines can be traced directly to products. During fiscal 2013, Smart used $80 of previously purchased parts and materials in production and accrued $90 of direct labor costs. Here are the related entries: Smart Company: Recognizing direct production costs Using parts and materials inventories Work-in-process $80 Parts and materials inventories $80 Accruing direct labor costs Work-in-process $90 Accrued liabilities $90 One of the keys to learning production-related entries is to recognize how they compare to nonproduction-related entries you already know how to record. To this end, we are going to compare the above entry to accrue $90 of direct labor costs to the entry Smart records during fiscal 2013 to accrue $105 of non-production-related compensation costs. (For example, employees working in the factory versus those working at the corporate office.) Smart Company: Contrasting production-related and non-production-related entries to accrue compensation Accruing direct labor costs to production Work-in-process $90 Accrued liabilities $90 Accruing non-production-related compensation Selling, general and administrative expenses $105 Accrued liabilities $105 Both entries recognize Smart s obligation to pay employees for services rendered, but their financial statement consequences differ significantly. In particular, accruing non-production-related compensation results in an expense, while recognizing production-related compensation results in an asset being recognized.

8 8 Navigating Accounting The difference in these entries can easily be understood using the four questions and OEC Map approach we have been using throughout the course to record entries. We will first demonstrate this approach for accrued compensation associated with non-production-related employees. Recall our earlier responses to the four questions when we accrued compensation: 1. Should an asset be recognized? Generally, we would expect future benefits to be created when non-production-related employees work. For example, we would expect future benefits to be realized when employees at the corporate headquarters are working on marketing strategies. However, these benefits can t be measured reliably and, in particular, determining when, if ever, the benefits are realized is problematic. Thus, the answer to this question is no: an asset is not recognized when non-production-related compensation is accrued. 2. Should an asset be de-recognized? No. There is not a related previously recognized asset to de-recognize. 3. Should a liability be recognized? Yes, the company is obligated to pay the compensation. 4. Should a liability be de-recognized? No. There is not a related previously recognized liability to de-recognize The third question is the only one we answered affirmatively, which means net assets and thus owners equity decreases when compensation is accrued for a non-production-related employee. From the OEC Map, we can easily determine that an expense is recognized. What is different with production-related compensation? The answers to all of the questions above except the first will be the same. Should we recognize an asset when production-related compensation is accrued? Yes: An asset should be recognized. The direct labor employed during production helped produce inventory, whose future benefits will be realized when products are sold. So the distinguishing difference is we can now determine when the future benefits have been realized: when the product is sold. This was not true for non-production-related compensation. More generally, as we shall see, the cost of all resources used to produce products are recorded to inventory. By contrast, costs associated with using similar resources in non-production activities are expensed as the resources are used. Recording indirect costs to WIP Indirect costs, which can t be precisely associated with specific products, are assigned to overhead accounts called overhead pools, which are groups of costs that tend to be correlated with one or more factors that are associated with production. For example, in many production contexts the cost of utilities and the cost of using equipment (depreciation) are highly correlated with the number of hours that the equipment is operated (machine hours). When such correlation occurs, it is common to group utilities costs, depreciation, and other costs that are correlated with machine hours into a single overhead pool. Similarly, in some contexts, overhead cost pools are created when groups of costs are highly correlated with direct labor or materials usage.

9 Accounting for Manufacturing 9 The costs in these overhead pools are subsequently aggregated and assigned to products individual WIP accounts using product costing formulas that are beyond the scope of this chapter. As indicated earlier, we are focusing on aggregate cost flows rather than flows into specific products. Accordingly, rather than recording incurred costs first to overhead pools and then to WIP, we will simply record them directly to WIP: Examples Recall from earlier chapters that expenses associated with using non-production-related resources can be recognized before, at the same time, or after the cash outflows to acquire these resources. For example, expenses can be prepaid or accrued. Likewise, the costs associated with using productionrelated resources can be recognized in WIP before, at the same time, or after the cash outflows to acquire these resources.

10 10 Navigating Accounting Next, we will provide several examples to illustrate that the only difference between the entries to use non-production-related resources and production-related resources is that expenses are debited in one case and WIP in the other. For each example, the reason for recognizing an asset in one case and an expense in the other is the same as for the earlier accrued compensation example: we know when the future benefits associated with WIP will be realized (when products are sold). In our first example, we compare the entries Smart recorded during fiscal 2013 for using previously prepaid rental property for production-related versus non-production-related activities. Smart Company: Contrasting production-related and non-production-related entries to use prepaid rental property Using rental property for production-related activities Work-in-process $75 Prepaid rent $75 Using rental property for non-production-related activities Selling, general and administrative expenses $85 Prepaid rent $85 In our second example, we compare the entries Smart recorded during fiscal 2013 for using PP&E for production-related versus non-production-related activities. Smart Company: Contrasting production-related and non-production-related entries to use PP&E Using rental property for production-related activities Work-in-process $120 Accumulated depreciation $120 Using rental property for non-production-related activities Depreciation expense $70 Accumulated depreciation $70 Completing production When production is completed, products are generally transferred to warehouses where they are stored until they are sold and delivered to customers. At this time, their costs are transferred to finished goods inventories. The amount transferred is determined by multiplying the cost per unit

11 Accounting for Manufacturing 11 times the number of units completed. Similar to work-in-process, typically products or similar groups of products have separate finished goods inventories accounts that are used for internal decisions and aggregated for financial reporting. Example During fiscal 2013, Smart Company completed production on products with $350 of inventoried costs, meaning costs previously charged to inventory. Here is the entry: Smart Company: Transferring completed products to FGI Finished goods inventories $350 Work-in-process $350 Accounting for cost of sales When products are sold and delivered to customers, costs are transferred out of finished goods inventory. As we shall see in this section, where they are transferred to depends on whether revenue is recognized at the time of delivery.

12 12 Navigating Accounting Companies recognize revenue and cost of sales when they have met the recognition criteria. Generally, the criteria are met when products are delivered, at which time companies decrease FGI and increase cost of sales. However, GAAP requires companies to defer revenue and expense recognition if the criteria have not been met. GAAP requires the related costs to stay on the seller s balance sheet until revenue is subsequently recognized. That is, cost of sales is deferred when revenues are deferred. However, GAAP doesn t specify how the deferred costs should be presented on the balance sheet and our research suggests at least two approaches are practiced: Leave the deferred costs in inventory, possibly segregated from other finished goods inventory either disclosed on the balance sheet or in a footnote. For example, Cisco segregates Distributor inventory and deferred cost of sales from Manufactured finished goods in the Inventories section of its Balance Sheet Details footnote: July 28, 2012 July 30, 2011 Inventories: Raw materials $127 $219 Work-in-process Finished goods Distributor inventory and deferred cost of sales Manufactured finished goods Total finished goods $1,227 $962 Service-related spares Demonstration systems Total $1,663 $1,486 Cisco's K, page 98, Inventories section of Note 6 (Balance Sheet Details), sec.gov The SEC recommended this approach when companies were forced to restate their financial statements after the SEC brought enforcement actions against them for improperly recognizing revenue. The SEC concluded the sales that were previously recognized as revenue should have been treated like consignment sales. For consignment sales, the seller delivers the product, but retains substantially all of the risk of ownership, the inventory remains on the seller s books and the inventory is reclassified as consignment inventory. Under consignment sales agreements, retailers/buyers do not assume ownership of delivered products (title does not transfer) and are not obligated to pay for them until they resell them to their customers. Inventories associated with deemed consignment sales can be included with finished goods inventories (as Cisco does) or segregated from them. Report a deferred income liability: deferred revenues less deferred cost of sales. While Intel doesn t explicitly state that it nets deferred cost of sales against deferred revenues, it has reported a deferred income liability rather than a deferred revenue liability for several years. In fact, Intel followed this practice before the SEC started characterizing sales similar to the ones where Intel defers revenues as consignment sales.

13 Accounting for Manufacturing 13 Examples Smart Company defers $130 of revenue on a cash sale of a product with $80 of inventoried costs. Here are the entries Smart would recognize if it treats the sale as a consignment sale and transfers the costs to a segregated inventory account that is not included in finished goods inventories. Smart Company: Revenue is deferred and sale is treated as a consignment sale with inventory segregated from FGI Defer revenue on cash sale Cash and cash equivalents $130 Deferred revenue $130 Defer cost of sales and segregate inventory from FGI Segregated inventories: deferred revenue $80 Finished goods inventories $80 Here are the entries Smart would record if it reports a deferred income liability on its balance sheet and maintains a separate deferred cost of sales contra liability to its deferred revenue liability: Smart Company: Revenue is deferred and a deferred income liability is recognized: deferred revenues less deferred costs Defer revenue on cash sale Cash and cash equivalents $130 Deferred revenue $130 Defer cost of sales and segregate inventory from FGI Deferred cost of sales (contra liability to deferred revenues) $80 Finished goods inventories $80

14 14 Navigating Accounting ACCOUNTING FOR INVENTORY IMPAIRMENTS Under both IFRS and US GAAP, inventory must be impaired (written down) when management anticipates a future sale will result in a loss. However, the formulas for determining the impairments differ and impairments can be reversed under IFRS, but not under US GAAP. We will use an example to illustrate these differences and introduce related concepts. Example Facts On October 30, 2013 a sudden drop in demand leads Smart Company to drop the sales price of one of is products from $20 to $9 per unit. The carrying value of each unit in inventory on that date, which is also the historical cost, is $10. Smart expects it will incur $2 of additional costs to sell each unit. This means the net realizable value of future sales is expected to be $7: the $9 sales price less the $2 of additional costs. Smart has 100 units in inventory on October 30, Smart estimates the replacement cost of the inventory on October 30, 2013 is the same as its historical cost, $10 per unit. Smart writes down the inventory on October 30, 2013 (as indicated below). On November 1, 2013 Smart sells one unit for $9 cash. Prior to the write down On October 31, Smart expects to realize a loss of $3 on future sales of each unit in inventory: -$3 = $9 sales price less $2 of additional cost less $10 of inventoried costs. Thus, it expects to realize a total loss of $300 on the 100 units in inventory. More generally, the gain or loss that is expected to be realized when inventory is sold is its expected net realizable value less its historical cost. Given the example s facts and, in particular, the replacement cost assumption, the same impairment must be recognized on October 31st under US GAAP and IFRS: $300. We will outline how the impairments can differ under IFRS and US GAAP later and direct you to a Drill Deeper video that has a detailed explanation of these differences. Because impairments can be reversed under IFRS, they must be recorded to an allowance for accumulated impairments that is a contra asset to finished goods inventories (so companies can keep tract of the amount that can be reversed in the future). By contrast, because reversals are not permitted under US GAAP, companies can maintain allowances or write-off finished goods directly. As we shall see, the two approaches have the same financial-statement effects. Here are the entries to record the $300 October 31st impairment and sale of one unit for $9 on November 1st (with and without an allowance):

15 Accounting for Manufacturing 15 Smart Company's inventory impairment entries, using an allowance October 31: Inventory write down in anticipation of a loss Cost of goods sold $300 Allowance for inventories impairments $300 November 1: Previously written down inventory is sold Recognize revenue Cash and cash equivalents $9 Revenues, net $9 Recognize cost of sales Allowance for inventories impairments $3 Cost of goods sold $7 Finished goods inventories $10 Smart Company's inventory impairment entries, without an allowance October 31: Inventory write down in anticipation of a loss Cost of goods sold $300 Finished goods inventories $300 November 1: Previously written down inventory is sold Recognize revenue Cash and cash equivalents $9 Revenues, net $9 Recognize cost of sales Cost of goods sold $7 Finished goods inventories $7 As indicated earlier, the approaches used to determine impairments differ under IFRS and US GAAP will generally result in different impairment amounts. The IFRS approach is relatively straightforward: the carrying value of inventory at each balance sheet date must be the lower of cost or net realizable value. This means whenever the net realizable value is lower than the cost, the accumulated impairment allowance must ensure the carrying value is the net realizable value. That is, the allowance balance must ensure the following: net realizable value = cost - allowance. No allowance is recognized when the cost is lower than the net realizable value. An adjusting entry at each balance sheet date ensures the allowance has the correct balance. When this entry increases the allowance, cost of sales increases (as it did above in the example). When the adjusting entry decreases the allowance, there is a reversal, and cost of sales decreases. (The reversal can t exceed the allowance balance prior to the reversal.)

16 16 Navigating Accounting The IFRS test for impairment compares cost to expected future selling prices adjusted to net realizable value. Thus, it is based on costs and price changes in a single market: the product or output market. For example, Smart Company recognized an impairment when there was a significant decrease in the expected future selling price of the inventory. Importantly, IFRS impairments are not affected by replacement costs. That is, by changing prices in the input market where it purchases inventory or resources to produce inventory. By contrast, impairments under US GAAP can be affected by price changes in either the input or output market. For example, suppose the expected future selling price of Smart s inventory had NOT decreased from $20 to $9 on October 31, 2013, but the replacement cost dropped to $8 (because of supply side cost savings). Under US GAAP, Smart would recognize a $2 impairment to ensure the carrying value of its inventory did not exceed its replacement cost. On the surface, similar to IFRS, the carrying value requirement for inventories under US GAAP seems to be relatively straightforward: the carrying value is the lower of cost or market. In fact, determining impairments is straightforward once you know market. However, as suggested above, market is derived using information from two markets (input and output). The related formula is rather clever once you figure it out, but beyond the scope of this chapter. Drill deeper - beyond the scope of this chapter. For a detailed explanation of the lower of cost or market rule, view the US GAAP menu items of the Navigating Accounting Inventory Impairments video:

Chapter 9: Inventories. Raw materials and consumables Finished goods Work in Progress Variants of valuation at historical cost other valuation rules

Chapter 9: Inventories. Raw materials and consumables Finished goods Work in Progress Variants of valuation at historical cost other valuation rules Chapter 9: Inventories Raw materials and consumables Finished goods Work in Progress Variants of valuation at historical cost other valuation rules 1 Characteristics of Inventories belong to current assets

More information

IFRS Training. IAS 2 Inventories. Professional Advisory Services

IFRS Training. IAS 2 Inventories.   Professional Advisory Services IFRS Training IAS 2 Inventories Table of Contents Section 1 Overview 2 Scope 3 Definitions 4 Measurement 5 Perpetual Versus Periodic 6 Cost Formulas 7 Net Realizable Value 8 Recognition 9 Disclosure Section

More information

Chapter 8 Inventories: Measurement

Chapter 8 Inventories: Measurement Chapter 8 Inventories: Measurement QUESTIONS FOR REVIEW OF KEY TOPICS Question 8 1 Inventory for a manufacturing company consists of (1) raw materials, (2) work in process, and (3) finished goods. Raw

More information

1 INTRODUCTION DEFINITIONS VALUATION INVENTORY ALLOWANCE (NET REALIZABLE VALUE) REPORTING INTERNAL INVENTORY...

1 INTRODUCTION DEFINITIONS VALUATION INVENTORY ALLOWANCE (NET REALIZABLE VALUE) REPORTING INTERNAL INVENTORY... RAPALA INVENTORY VALUATION PRINCIPLES AND INTERNAL INVENTORY 1 INTRODUCTION... 2 2 DEFINITIONS... 2 2.1 INVENTORIES... 2 2.2 STOCK COVERAGE... 3 2.3 OBSOLETE INVENTORY... 3 2.4 NET REALIZABLE VALUE...

More information

AGENDA: JOB-ORDER COSTING

AGENDA: JOB-ORDER COSTING TM 3-1 AGENDA: JOB-ORDER COSTING A. The documents in a job-order costing system. 1. Materials requisition form. 2. Direct labor time ticket. 3. Job cost sheet. B. Applying overhead using a predetermined

More information

IAS - 02 INVENTORIES

IAS - 02 INVENTORIES IAS - 02 INVENTORIES Objective To prescribe the accounting treatment for inventories. Scope All inventories except: (a) (b) Financial instruments (see IAS 32 Financial Instruments: Presentation and IFRS

More information

An accounting perspective: Business insight

An accounting perspective: Business insight An accounting perspective: Business insight Engineers for automobile companies in the United States believe that Japanese manufacturers can build cars for considerably less than their US counterparts.

More information

Management s Accountability to Stakeholders Stakeholders Provide Management is accountable for: Owners Operating activities Government Creditors

Management s Accountability to Stakeholders Stakeholders Provide Management is accountable for: Owners Operating activities Government Creditors Chapter 15 Distinguish management accounting from financial accounting Management Management s Accountability to Stakeholders Stakeholders Owners Government Provide Management is accountable for: Operating

More information

3. Which is not an inventory account manufacturing companies have: a) Raw Materials b) Manufacturing Overhead c) Work in Process d) Finished Goods

3. Which is not an inventory account manufacturing companies have: a) Raw Materials b) Manufacturing Overhead c) Work in Process d) Finished Goods Chapter 1 Question Review 1. Which of the following is not a characteristic of managerial accounting: a) Emphasizes decisions affecting the future b) Mandatory for external reports c) Need not follow GAAP

More information

ACCT Professor Johnson Lecture Notes Chapter 16: PROCESS COSTING AND ANALYSIS

ACCT Professor Johnson Lecture Notes Chapter 16: PROCESS COSTING AND ANALYSIS PROCESS OPERATIONS ACCT 102 - Professor Johnson Lecture Notes Chapter 16: PROCESS COSTING AND ANALYSIS In Chapter 15, we studied the job order cost accounting system used when a company manufactures products

More information

Chapter 2 An Introduction to Cost Terms and Purposes

Chapter 2 An Introduction to Cost Terms and Purposes Chapter 2 An Introduction to Cost Terms and Purposes Copyright 2003 Pearson Education Canada Inc. Slide 2-15 Costs and Cost Objects Cost a resource sacrificed or foregone to achieve a specific objective

More information

EUROPEAN UNION ACCOUNTING RULE 9 INVENTORIES

EUROPEAN UNION ACCOUNTING RULE 9 INVENTORIES EUROPEAN UNION ACCOUNTING RULE 9 INVENTORIES Page 2 of 9 I N D E X 1. Objective... 3 2. Scope... 3 3. Definitions... 3 4. Definition of inventories... 4 5. Measurement... 5 5.1 Cost of inventories... 5

More information

6) Items purchased for resale with a right of return must be presented separately from other inventories.

6) Items purchased for resale with a right of return must be presented separately from other inventories. Chapter 8 Cost-based Inventories and Cost of Sales 1) Inventories are assets consisting of goods owned by the business and held for future sale or for use in the manufacture of goods for sale. Answer:

More information

6 The following terms are used in this Standard with the meanings specified: Inventories are assets:

6 The following terms are used in this Standard with the meanings specified: Inventories are assets: International Accounting Standard 2 Inventories Objective 1 The objective of this Standard is to prescribe the accounting treatment for inventories. A primary issue in accounting for inventories is the

More information

Sri Lanka Accounting Standard LKAS 2. Inventories

Sri Lanka Accounting Standard LKAS 2. Inventories Sri Lanka Accounting Standard LKAS 2 Inventories CONTENTS paragraphs SRI LANKA ACCOUNTING STANDARD LKAS 2 INVENTORIES OBJECTIVE 1 SCOPE 2 5 DEFINITIONS 6 8 MEASUREMENT OF INVENTORIES 9 33 Cost of inventories

More information

MERCHANDISING TRANSACTIONS: INTRODUCTION TO INVENTORIES AND CLASSIFIED INCOME STATEMENT

MERCHANDISING TRANSACTIONS: INTRODUCTION TO INVENTORIES AND CLASSIFIED INCOME STATEMENT Learning Objectives CHAPTER 6 MERCHANDISING TRANSACTIONS: INTRODUCTION TO INVENTORIES AND CLASSIFIED INCOME STATEMENT 1. Record journal entries for sales transactions involving merchandise. 2. Describe

More information

An Introduction to Cost Terms and Purposes. Dr. Osama Al Meanazel

An Introduction to Cost Terms and Purposes. Dr. Osama Al Meanazel An Introduction to Cost Terms and Purposes Dr. Osama Al Meanazel Lecture 5 Other Cost Concepts Cost driver a variable that causally affects costs over a given time span Relevant range the band of normal

More information

CHAPTER 8: INVENTORY

CHAPTER 8: INVENTORY CHAPTER 8: INVENTORY Inventory Categories Merchandise inventory - ready for sale units that are unsold at the end of the fiscal period raw materials inventory - costs assigned to goods and materials on

More information

Gatsby s Accounting System and Policies Designed by Regina Rexrode Copyright - Armond Dalton

Gatsby s Accounting System and Policies Designed by Regina Rexrode Copyright - Armond Dalton Gatsby s Accounting System and Policies a Images used on the front cover and throughout this book were obtained under license from Shutterstock.com 2017, by Armond Dalton Publishers, Inc. All rights reserved.

More information

Chapter 02 Cost Terminology and Cost Behaviors. Lecture Outline. LO.1 Why are costs associated with a cost object? A. Introduction

Chapter 02 Cost Terminology and Cost Behaviors. Lecture Outline. LO.1 Why are costs associated with a cost object? A. Introduction Solution Manual for Cost Accounting Foundations and Evolutions 8th Edition by Kinney and Raiborn Link full download of Solution Manual: https://digitalcontentmarket.org/download/solution-manual-for-costaccounting-foundations-and-evolutions-8th-edition-by-kinney-and-raiborn/

More information

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC FORM 8-K/A MICROCHIP TECHNOLOGY INCORPORATED

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC FORM 8-K/A MICROCHIP TECHNOLOGY INCORPORATED UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 June 8, 2016 (April 4, 2016) Date

More information

Type of Inventory. OVERVIEW In case of manufacturing concerns. Stores and Spares. Formulae for Determining Cost of Inventory

Type of Inventory. OVERVIEW In case of manufacturing concerns. Stores and Spares. Formulae for Determining Cost of Inventory CHAPTER 4 INVENTORIES LEARNING OUTCOMES After studying this chapter, you will be able to: Understand the meaning of term 'Inventory'. Learn the technique of Specific identification method, FIFO, Average

More information

REVIEW FOR EXAM NO. 1, ACCT-2302 (SAC) (Chapters 14-16)

REVIEW FOR EXAM NO. 1, ACCT-2302 (SAC) (Chapters 14-16) A. Chapter 14 (Managerial Accounting). 1. Purposes and Principles. (Page 632) REVIEW FOR EXAM NO. 1, ACCT-2302 (SAC) (Chapters 14-16) a. Provides economic/financial information (both historical and estimated)

More information

COST OF GOODS MANUFACTURED & SOLD STATEMENT

COST OF GOODS MANUFACTURED & SOLD STATEMENT COST OF GOODS MANUFACTURED & SOLD STATEMENT In order to understand the financial and cost statement of a concern we should clear about the procedure adopted by trading concern and manufacturing concern

More information

LKAS 02 INVENTORIES CA BUSINESS SCHOOL EXECUTIVE DIPLOMA IN BUSINESS AND ACCOUNTING. M B G Wimalarathna SEMESTER 1

LKAS 02 INVENTORIES CA BUSINESS SCHOOL EXECUTIVE DIPLOMA IN BUSINESS AND ACCOUNTING. M B G Wimalarathna SEMESTER 1 CA BUSINESS SCHOOL EXECUTIVE DIPLOMA IN BUSINESS AND ACCOUNTING SEMESTER 1 LKAS 02 INVENTORIES M B G Wimalarathna (FCA, FCMA, MCIM, FMAAT, MCPM)(MBA PIM/USJ) Objective The objective of this Standard is

More information

PROFESSOR S CLASS NOTES FOR UNIT 8 COB 241 Sections 13, 14, 15 Class on October 3, 2018

PROFESSOR S CLASS NOTES FOR UNIT 8 COB 241 Sections 13, 14, 15 Class on October 3, 2018 PROFESSOR S CLASS NOTES FOR UNIT 8 COB 241 Sections 13, 14, 15 Class on October 3, 2018 Acquisition Cost of Long-Term Assets A video accompanying Unit 6 introduced the concept of Acquisition Cost. To review:

More information

Full file at

Full file at Chapter 02--Job Order Costing Student: 1. Cost accounting systems are used to supply cost data information on costs incurred by a manufacturing process or department. 2. A manufacturer may employ a job

More information

Topic 4. Session Objectives. Inventory Adjustments. Session Objectives. Inventory

Topic 4. Session Objectives. Inventory Adjustments. Session Objectives. Inventory Session Objectives Topic 4 Inventory Understand the need for adjustment for inventory in preparing financial statements Describe how opening and closing inventory appears in the profit and loss accounts

More information

NRV vs. FV NRV is entity-specific value; FV is not. NRV for inventories may not equal FV-CTS.

NRV vs. FV NRV is entity-specific value; FV is not. NRV for inventories may not equal FV-CTS. IAS 2 DEFINITIONS NRV FV are assets: (a) held for sale in the ordinary course of business (finished goods); (b) in the process of production for such sale (WIP); or (c) in the form of materials or supplies

More information

Chapter 02 - Cost Concepts and Cost Allocation

Chapter 02 - Cost Concepts and Cost Allocation Chapter 02 - Cost Concepts and Cost Allocation Student: 1. Product costs for a manufacturing company consist of direct materials, direct labor, and overhead. 2. Period cost and product cost are synonymous

More information

Chapter 02 - Cost Concepts and Cost Allocation

Chapter 02 - Cost Concepts and Cost Allocation Chapter 02 - Cost Concepts and Cost Allocation Student: 1. Product costs for a manufacturing company consist of direct materials, direct labor, and overhead. 2. Period cost and product cost are synonymous

More information

Work4Me Managerial Accounting Simulations. Problem Four

Work4Me Managerial Accounting Simulations. Problem Four Work4Me Managerial Accounting Simulations 1 st Web-Based Edition Problem Four Process Costing Patterson Tooling Company Page 1 INTRODUCTION Patterson Tooling Company manufactures a single product. The

More information

Chapter 7: Merchandise Inventory

Chapter 7: Merchandise Inventory 1 Chapter 7: Merchandise Inventory 2 3 Merchandise Inventory What is inventory? Items held for resale to customers Who has inventory? Wholesaler or Retailer - Merchandise Inventory Manufacturer - Raw Materials

More information

Revenue for chemical manufacturers

Revenue for chemical manufacturers Revenue for chemical manufacturers The new standard s effective date is coming. US GAAP August 2017 kpmg.com/us/frv b Revenue for chemical manufacturers Revenue viewed through a new lens Again and again,

More information

Full file at https://fratstock.eu CHAPTER 2

Full file at https://fratstock.eu CHAPTER 2 CHAPTER 2 LEARNING OBJECTIVES 1. DESCRIBE HOW ACCOUNTS, DEBITS, AND CREDITS ARE USED TO RECORD BUSINESS TRANSACTIONS. 2. INDICATE HOW A JOURNAL IS USED IN THE RECORDING PROCESS. 3. EXPLAIN HOW A LEDGER

More information

Chapter 17. Objectives PRBA007 TOPIC TWO C. 1of 13. Unit costs for decision-making

Chapter 17. Objectives PRBA007 TOPIC TWO C. 1of 13. Unit costs for decision-making 17-0 17-1 Chapter 17 Unit costs for decision-making Objectives 17-2 Once you have completed this part of the topic, you should be able to: 1. Explain the importance of unit costs. 2. Identify the costs

More information

REVISION: MANUFACTURING 12 SEPTEMBER 2013

REVISION: MANUFACTURING 12 SEPTEMBER 2013 REVISION: MANUFACTURING 12 SEPTEMBER 2013 Lesson Description In this lesson we: Revise ledger accounts and the production cost statement Key Concepts Ledger Accounts for Manufacturing Differences between

More information

ACCT 102 GROUP PROJECT INSTRUCTIONS

ACCT 102 GROUP PROJECT INSTRUCTIONS ACCT 102 GROUP PROJECT INSTRUCTIONS In the business world you will be required to communicate and coordinate projects and results with coworkers and supervisors, therefore, it is up to the group to decide

More information

Inventories IAS 2 IAS 2. IFRS Foundation

Inventories IAS 2 IAS 2. IFRS Foundation IAS 2 Inventories In April 2001 the International Accounting Standards Board (the Board) adopted IAS 2 Inventories, which had originally been issued by the International Accounting Standards Committee

More information

Chapter 2--Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows

Chapter 2--Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows Chapter 2--Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows Student: 1. Which of the following types of organizations is most likely to have a raw materials inventory account?

More information

WINDSTREAM CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts)

WINDSTREAM CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts) (A) (B) (C) (D) WINDSTREAM CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts) THREE MONTHS ENDED SIX MONTHS ENDED Increase Increase June 30, June 30, (Decrease)

More information

COST C O S T COST 1/12/2011

COST C O S T COST 1/12/2011 Chapter 3 COST CONCEPT AND DESIGN ECONOMICS C O S T Ir. Haery Sihombing/IP Pensyarah Fakulti Kejuruteraan Pembuatan Universiti Teknologi Malaysia Melaka COST Cost is not a simple concept. It is important

More information

Inventory Cost Accounting Tips and Tricks. Nick Bergamo, Senior Manager Linda Pei, Senior Manager

Inventory Cost Accounting Tips and Tricks. Nick Bergamo, Senior Manager Linda Pei, Senior Manager 1 Inventory Cost Accounting Tips and Tricks Nick Bergamo, Senior Manager Linda Pei, Senior Manager 2 Disclaimer The material appearing in this presentation is for informational purposes only and is not

More information

Chapter 2--Cost Terminology and Cost Behaviors

Chapter 2--Cost Terminology and Cost Behaviors Chapter 2--Cost Terminology and Cost Behaviors TRUE/FALSE 1. A cost object is anything for which management wants to collect or accumulate costs. ANS: T PTS: 1 DIF: Easy OBJ: 2-1 2. A production plant

More information

Estimated Cost per Watt Methodology

Estimated Cost per Watt Methodology Estimated Cost per Watt Methodology August 8, 2016 Cost per watt (CPW) is an important metric in understanding Vivint Solar s residential business. The CPW calculation includes costs associated with systems

More information

Accounting for Merchandising Operations

Accounting for Merchandising Operations 5-1 Chapter 5 Accounting for Merchandising Operations Learning Objectives After studying this chapter, you should be able to: 1. Identify the differences between service and merchandising companies. 2.

More information

Test Bank For Cost Accounting A Managerial Emphasis Fifth Canadian 5th Edition By Horngren Foster Datar And Gowing

Test Bank For Cost Accounting A Managerial Emphasis Fifth Canadian 5th Edition By Horngren Foster Datar And Gowing Test Bank For Cost Accounting A Managerial Emphasis Fifth Canadian 5th Edition By Horngren Foster Datar And Gowing Link full download: https://digitalcontentmarket.org/download/test-bank-for-cost-accounting-amanagerial-emphasis-fifth-canadian-5th-edition-by-horngren-foster-datar-andgowing/

More information

Full file at

Full file at Chapter 02 Cost Concepts and Behavior True / False Questions 1. The cost of an item is the sacrifice made to acquire it. True False 2. An expense is an expired cost matched with revenues in a specific

More information

LEMBAGA PIAWAIAN PERAKAUNAN MALAYSIA MALAYSIAN ACCOUNTING STANDARDS BOARD. MASB Standard 2. Inventories

LEMBAGA PIAWAIAN PERAKAUNAN MALAYSIA MALAYSIAN ACCOUNTING STANDARDS BOARD. MASB Standard 2. Inventories LEMBAGA PIAWAIAN PERAKAUNAN MALAYSIA MALAYSIAN ACCOUNTING STANDARDS BOARD MASB Standard 2 Inventories Any correspondence regarding this Standard should be addressed to: The Chairman Malaysian Accounting

More information

Overview. This Accounting Standard is aimed to streamline the accounting methods for inventories.

Overview. This Accounting Standard is aimed to streamline the accounting methods for inventories. IAS 2 INVENTORIES Overview This Accounting Standard is aimed to streamline the accounting methods for inventories. The foremost concern in Inventory accounting is that the cost would be considered as asset

More information

Chapter 9 Inventories: Additional Issues

Chapter 9 Inventories: Additional Issues Chapter 9 Inventories: Additional Issues QUESTIONS FOR REVIEW OF KEY TOPICS Question 9 1 GAAP generally requires the use of historical cost to value assets, but a departure from cost is necessary when

More information

8. Name each of the basic inventory-related stock and flow accounts and explain their relationship to one another.

8. Name each of the basic inventory-related stock and flow accounts and explain their relationship to one another. 7. Understand the difference between inventoriable vs non inventoriable costs given the type of organization (merchandising vs manufacturing vs service) Inventoriable cost: cost included in the value of

More information

Accounting for Merchandising Operations

Accounting for Merchandising Operations 5-1 Chapter 5 Accounting for Merchandising Operations Learning Objectives After studying this chapter, you should be able to: 1. Identify the differences between service and merchandising companies. 2.

More information

Study Unit 10. Inventories (IAS 2)

Study Unit 10. Inventories (IAS 2) Study Unit 10 Inventories (IAS 2) IAS 2: Inventories SUMMARY STANDARD ON A PAGE (SOAP) IAS 2 Inventories Held for sale in ordinary course of business In the process of production for such sales To be consumed

More information

19 Process: Cost systems

19 Process: Cost systems 19 Process: Cost systems 19.1 Learning objectives After studying this chapter, you should be able to: Describe the types of operations that require a process cost system. Distinguish between process and

More information

DEFINITIONS AND CONCEPTS

DEFINITIONS AND CONCEPTS DEFINITIONS AND CONCEPTS ** CONCEPTS AND DEFINITIONS IN THIS MODULE APPEAR IN VARIOUS CHAPTERS ** Key Terms and Concepts to Know Major Management Activities Planning - formulating long and short-term plans

More information

COST OF GOODS MANUFACTURES B.COM. PART II

COST OF GOODS MANUFACTURES B.COM. PART II COST OF GOODS MANUFACTURES B.COM. PART II Q#1 Following are the balances appear on the Trial Balance of SAMREEN & Co. for the year ended April 30, 1980. Inventory of Goods in Process April, 01 Rs.109,000

More information

1. The cost of an item is the sacrifice of resources made to acquire it. 2. An expense is a cost charged against revenue in an accounting period.

1. The cost of an item is the sacrifice of resources made to acquire it. 2. An expense is a cost charged against revenue in an accounting period. Chapter 02 Cost Concepts and Behavior True / False Questions 1. The cost of an item is the sacrifice of resources made to acquire it. True False 2. An expense is a cost charged against revenue in an accounting

More information

Chapter 3 Systems Design: Job-Order Costing

Chapter 3 Systems Design: Job-Order Costing Chapter 3 Systems Design: Job-Order Costing Solutions to Questions 3-1 By definition, manufacturing overhead consists of costs that cannot be practically traced to products or jobs. Therefore, if these

More information

Accounting 101 Class Notes Chapter 4 Accounting for Merchandising Operations

Accounting 101 Class Notes Chapter 4 Accounting for Merchandising Operations I. WHAT IS A MERCHANDISER? Merchandiser vs. Service Business Wholesaler vs. retailer This chapter changes the focus from a service-oriented business to a merchandising form of business. Merchandisers buy

More information

6. Refer to the Michael's Manufacturing, Inc. information above. Raw materials used for July is:

6. Refer to the Michael's Manufacturing, Inc. information above. Raw materials used for July is: Review II NUMBER 1. Which of the following is a characteristic of managerial accounting? a. It is used primarily by external users. b. It often lacks flexibility. c. It is often future-oriented. d. The

More information

IFRS Seminar. Berlin /24/2015 1

IFRS Seminar. Berlin /24/2015 1 IFRS Seminar Berlin 2015 8/24/2015 1 Accounting Issues for US Parent with European Subsidiaries: Cross Border Consolidation Issues Scott A. Walters, CPA, CGMA Partner, Daszkal Bolton LLP 8/24/2015 2 Purpose

More information

SILVERCORP NET INCOME $43.7 MILLION, $0.26 PER SHARE, FOR FISCAL 2017

SILVERCORP NET INCOME $43.7 MILLION, $0.26 PER SHARE, FOR FISCAL 2017 NEWS RELEASE Trading Symbol: TSX: SVM NYSE MKT: SVM SILVERCORP NET INCOME $43.7 MILLION, $0.26 PER SHARE, FOR FISCAL 2017 VANCOUVER, British Columbia May 25, 2017 Silvercorp Metals Inc. ( Silvercorp or

More information

Chapter 2--Job Order Costing

Chapter 2--Job Order Costing Chapter 2--Job Order Costing Student: 1. Cost accounting systems are used to supply cost data information on costs incurred by a manufacturing process or department. 2. A manufacturer may employ a job

More information

Similarities Between Job-Order and Process Costing

Similarities Between Job-Order and Process Costing Similarities Between Job-Order and Process Costing 4-1 Both systems assign material, labor, and overhead costs to products and they provide a mechanism for computing unit product costs. Both systems use

More information

2 Cost Concepts and Behavior

2 Cost Concepts and Behavior 2 Cost Concepts and Behavior Solutions to Review Questions 2-1. Cost is a more general term that refers to a sacrifice of resources and may be either an opportunity cost or an outlay cost. An expense is

More information

Lecture 2: Flow of resource costs

Lecture 2: Flow of resource costs Lecture 2: Flow of resource costs Cost Object: anything for which a separate measurement of costs is required, e.g. products, services, customers, projects, processes, segments of the value chain, divisions/departments,

More information

Cost Behavior. Material Cost: Direct material: 1. seen in the final product 2. economic/visible to trace Indirect Material:

Cost Behavior. Material Cost: Direct material: 1. seen in the final product 2. economic/visible to trace Indirect Material: 1 Chapter 2 Introduction to Cost Terms and Purposes Cost A cost is the value of economic resources (e.g., money) sacrificed or used up to achieve a particular objective (e.g., produce a product or perform

More information

An Introduction to Cost Terms and Purposes

An Introduction to Cost Terms and Purposes CHAPTER 2 An Introduction to Cost Terms and Purposes Overview This chapter introduces the basic terminology of cost accounting. Communication among managers and management accountants is greatly facilitated

More information

Indian Accounting Standard (Ind AS) 2 Inventories

Indian Accounting Standard (Ind AS) 2 Inventories Indian Accounting Standard (Ind AS) 2 Inventories Indian Accounting Standard (Ind AS) 2, Inventories, prescribes the accounting treatment for inventories, such as, determination of cost and its subsequent

More information

IND AS 2 IND AS 2: INVENTORIES. Applies To All inventories excepta) Financial Instruments (Ind AS 32/ Ind AS 109)

IND AS 2 IND AS 2: INVENTORIES. Applies To All inventories excepta) Financial Instruments (Ind AS 32/ Ind AS 109) IND AS 2: INVENTORIES 1. OBJECTIVE: The main objective of this standard is to prescribe accounting treatment of inventories and to determine cost of the inventories and its subsequent recognition as an

More information

Contents ADJUSTING THE ACCOUNTS. Analyze Accounts and Prepare Adjusting Entries 43. Learning Goal 4: Explain the Meaning of Accounting Period 7

Contents ADJUSTING THE ACCOUNTS. Analyze Accounts and Prepare Adjusting Entries 43. Learning Goal 4: Explain the Meaning of Accounting Period 7 Contents Review The Essential Accounts for a Corporation 1 The Accounts For a Corporation 1 Equity Accounts 1 Corporate Financial Statements: Quick Review 2 SECTION I Goal 1: ADJUSTING THE ACCOUNTS Explain

More information

1. F; I 2. V ; D 3. V ; D 4. F; I 5. F; I 6. F; I 7. V ; D 8. F; I 9. F; I 10. V ; D 11. F; I 12. F; I 13. F; I 14. F; I

1. F; I 2. V ; D 3. V ; D 4. F; I 5. F; I 6. F; I 7. V ; D 8. F; I 9. F; I 10. V ; D 11. F; I 12. F; I 13. F; I 14. F; I SOLUTIONS TO EERCISES EERCISE 2-1 (15 minutes) 1. F; I 2. V ; D 3. V ; D 4. F; I 5. F; I 6. F; I 7. V ; D 8. F; I 9. F; I 10. V ; D 11. F; I 12. F; I 13. F; I 14. F; I EERCISE 2-2 (15 minutes) 1. Product

More information

Sri Lanka Accounting Standard-LKAS 2. Inventories

Sri Lanka Accounting Standard-LKAS 2. Inventories Sri Lanka Accounting Standard-LKAS 2 Inventories CONTENTS paragraphs SRI LANKA ACCOUNTING STANDARD-LKAS 2 INVENTORIES OBJECTIVE 1 SCOPE 2 5 DEFINITIONS 6 8 MEASUREMENT OF INVENTORIES 9 33 Cost of inventories

More information

JOB ORDER COSTING. LO 1: Cost Systems. Determine whether job order costing or process costing would be more appropriate for each industry.

JOB ORDER COSTING. LO 1: Cost Systems. Determine whether job order costing or process costing would be more appropriate for each industry. JOB ORDER COSTING Terms Cost Accounting Process Cost System Job Order Cost System LO 1: Cost Systems Job-Order Costing Used for custom or unique items Each job is accounted for separately Measures cost

More information

Contact: / / P age Theory Base of Accounting: AS & IFRS

Contact: / / P age Theory Base of Accounting: AS & IFRS 1 P age Theory Base of Accounting: AS & IFRS ACCOUNTING PRINCIPLES Meaning: Accounting Principles the rules adopted by accountants universally while recording accounting transactions. These rules etc.

More information

The Purchasing Function:

The Purchasing Function: ACCT 100 - Intro to Acct. Chapter 8 - Accounting for Purchases, A/P, and Cash Payments Prof. Johnson Where we have been: Last time we started our discussion for merchandising entities and focused on the

More information

NESHAMINY SCHOOL DISTRICT LANGHORNE, PENNSYLVANIA. Course Title ACCOUNTING II

NESHAMINY SCHOOL DISTRICT LANGHORNE, PENNSYLVANIA. Course Title ACCOUNTING II NESHAMINY SCHOOL DISTRICT LANGHORNE, PENNSYLVANIA Course Title ACCOUNTING II COURSE OF STUDY: ACCOUNITNG II COURSE LENGTH: Full Year ENDURING UNDERSTANDING: Accounting represents formal record keeping

More information

ACCOUNTING - CLUTCH CH. 5 - INVENTORY.

ACCOUNTING - CLUTCH CH. 5 - INVENTORY. !! www.clutchprep.com CONCEPT: MERCHANDISING COMPANY VS MANUFACTURING COMPANY A merchandising company has Inventory account. Merchandisers goods manufactured by others. The Inventory account might also

More information

FM038: Inventory Accounting and Costing

FM038: Inventory Accounting and Costing FM038: Inventory Accounting and Costing FM038 Rev.001 CMCT COURSE OUTLINE Page 1 of 5 Training Description: Whether you are a trader, manufacturer, contractor or a service provider, inventory has a major

More information

PUBLIC BENEFIT ENTITY INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARD 12 INVENTORIES (PBE IPSAS 12)

PUBLIC BENEFIT ENTITY INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARD 12 INVENTORIES (PBE IPSAS 12) PUBLIC BENEFIT ENTITY INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARD 12 INVENTORIES (PBE IPSAS 12) This Standard was issued on 11 September 2014 by the New Zealand Accounting Standards Board of the External

More information

Chapter 02 Cost Concepts and Behavior

Chapter 02 Cost Concepts and Behavior Chapter 02 Cost Concepts and Behavior Solutions to Review Questions 2-1. Cost is a more general term that refers to a sacrifice of resources and may be either an opportunity cost or an outlay cost. An

More information

Chapter 02 Cost Concepts and Behavior

Chapter 02 Cost Concepts and Behavior Chapter 02 Cost Concepts and Behavior Solutions to Review Questions 2-1. Cost is a more general term that refers to a sacrifice of resources and may be either an opportunity cost or an outlay cost. An

More information

CHAPTER 20 JOB ORDER COST ACCOUNTING SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM S TAXONOMY. True-False Statements

CHAPTER 20 JOB ORDER COST ACCOUNTING SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM S TAXONOMY. True-False Statements CHAPTER 20 JOB ORDER COST ACCOUNTING SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM S TAXONOMY Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT True-False Statements 1. 1 K 8. 2 K 15. 2 K 22.

More information

Week 5. ACT102 Introduction to Accounting. Objectives 21/02/2018. What are retailing operations?

Week 5. ACT102 Introduction to Accounting. Objectives 21/02/2018. What are retailing operations? ACT102 Introduction to Accounting Week 5 Objectives Describe retailing operations, perpetual and periodic inventory systems and understand how to account for GST Account for the purchase of inventory using

More information

2 Cost Concepts and Behavior

2 Cost Concepts and Behavior 2 Cost Concepts and Behavior Solutions to Review Questions 2-1. Cost is a more general term that refers to a sacrifice of resources and may be either an opportunity cost or an outlay cost. An expense is

More information

Chapter 17 Job Order Costing Study Guide Solutions Fill-in-the-Blank Equations. Exercises. 1. Estimated activity base. 2. Underapplied. 3.

Chapter 17 Job Order Costing Study Guide Solutions Fill-in-the-Blank Equations. Exercises. 1. Estimated activity base. 2. Underapplied. 3. Chapter 17 Job Order Costing Study Guide Solutions Fill-in-the-Blank Equations 1. Estimated activity base 2. Underapplied 3. Overapplied Exercises 1. An automobile manufacturer produces various lines of

More information

Work4Me Managerial Accounting Simulations. Problem Eight

Work4Me Managerial Accounting Simulations. Problem Eight Work4Me Managerial Accounting Simulations 1 st Web-Based Edition Problem Eight Standard Costing and Variances South Yuba Milling Company Page 1 INTRODUCTION You will enter Transactions involving (1) the

More information

Accounting for Merchandising Businesses

Accounting for Merchandising Businesses CHAPTER 3 Accounting for Merchandising Businesses LEARNING OBJECTIVES After you have mastered the material in this chapter, you will be able to: 1 Identify and explain the primary features of the perpetual

More information

Cost Systems. Terms Cost Accounting Process Cost System Job Order Cost System

Cost Systems. Terms Cost Accounting Process Cost System Job Order Cost System Terms Cost Accounting Process Cost System Job Order Cost System Cost Systems Job-Order Costing Used for custom or unique items Each job is accounted for separately Measures cost based on completed job

More information

CEBU CPAR CENTER. M a n d a u e C I t y

CEBU CPAR CENTER. M a n d a u e C I t y Page 1 of 9 CEBU CPAR CENTER M a n d a u e C I t y AUDITING PROBLEMS AUDIT OF INVENTORIES PROBLEM NO. 1 The Pasay Company is a wholesale distributor of automobile replacement parts. Initial amounts taken

More information

Manage Your Own Company Business Game LIUC Cattaneo University

Manage Your Own Company Business Game LIUC Cattaneo University Manage Your Own Company Business Game LIUC Cattaneo University Player s Guide Initiative promoted by the University Carlo Cattaneo - LIUC in collaboration with the Regional School Office for Lombardy Versione

More information

New Zealand Equivalent to International Accounting Standard 2 Inventories (NZ IAS 2)

New Zealand Equivalent to International Accounting Standard 2 Inventories (NZ IAS 2) New Zealand Equivalent to International Accounting Standard 2 Inventories (NZ IAS 2) Issued November 2004 and incorporates amendments up to and including 30 November 2012 other than consequential amendments

More information

JOB COSTING AND OVERHEAD

JOB COSTING AND OVERHEAD JOB COSTING AND OVERHEAD Key Topics to Know Differences and similarities between job order and process costing Key document is the Job Cost Sheet Flow of product costs through inventory accounts to cost

More information

Cost Accounting, 15e (Horngren/Datar/Rajan) Chapter 2 An Introduction to Cost Terms and Purposes. Objective 2.1

Cost Accounting, 15e (Horngren/Datar/Rajan) Chapter 2 An Introduction to Cost Terms and Purposes. Objective 2.1 Cost Accounting, 15e (Horngren/Datar/Rajan) Chapter 2 An Introduction to Cost Terms and Purposes Objective 2.1 1) An actual cost is. A) is the cost incurred B) is a predicted or forecasted cost C) is anything

More information

Inventory and Cost of Goods Sold C AT EDRÁTICO U PR R I O P I EDRAS S EG. S EM

Inventory and Cost of Goods Sold C AT EDRÁTICO U PR R I O P I EDRAS S EG. S EM Inventory and Cost of Goods Sold E DWIN R ENÁN MALDONADO C AT EDRÁTICO U PR R I O P I EDRAS S EG. S EM. 2 017-18 Textbook: Financial Accounting, Spiceland This presentation contains information, in addition

More information

Inventories. IAS Standard 2 IAS 2. IFRS Foundation

Inventories. IAS Standard 2 IAS 2. IFRS Foundation IAS Standard 2 Inventories In April 2001 the International Accounting Standards Board (the Board) adopted IAS 2 Inventories, which had originally been issued by the International Accounting Standards Committee

More information

CHAPTER 6 Inventory Costing ANSWERS TO QUESTIONS

CHAPTER 6 Inventory Costing ANSWERS TO QUESTIONS CHAPTER 6 Inventory Costing ANSWERS TO QUESTIONS 1. Taking a physical inventory involves counting, weighing or measuring each kind of inventory on hand. This is normally done when the store is closed.

More information

Chapter 2--Cost Terminology and Cost Behaviors

Chapter 2--Cost Terminology and Cost Behaviors Chapter 2--Cost Terminology and Cost Behaviors Student: 1. A cost object is anything for which management wants to collect or accumulate costs. 2. A production plant could be a cost object. 3. A specific

More information

Chapter 3--Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows

Chapter 3--Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows Chapter 3--Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows Student: 1. Which of the following types of organizations is most likely to have a raw materials inventory account?

More information