Chapter 10--Learning Objectives.ppt

Chapter 10--Learning Objectives 1. Explain the importance of inventory for asset valuation and income measurement Inventories are a significant asset for many businesses Inventories affect income Sales XXX Beginning inventory XXX Purchases XXX Goods available for sale XXX Ending inventory XXX Cost of goods sold XXX Gross profit XXX Operating expenses XXX Net income XXX Chapter 10--Learning Objectives 2. Understand the nature of inventory and what is included in it Types of inventory 1. Assets held for sale or resale in the ordinary course of business 2. Assets used or consumed in the production of goods to be sold in the ordinary course of business A retail store Sears, Wal-Mart, Safeway Has inventory for resale to customers A manufacturer Ford, IBM, Exxon Has inventories used or consumed in the production of goods for sale A manufacturer’s inventorieswill usually include Raw materials inventory Items used in producing the product Work in process inventory Products started but not yet completed Finished goods inventory Products completed but not yet sold What about this F.O.B. stuff ? “F.O.B.” means “free on board” and refers to the time and place at which the goods were turned over to the transportation carrier If you are in Los Angelesand your supplier is in New York City If you are in Los Angelesand your supplier is in New York City Somebody has to pay for moving the goods across the country If you are in Los Angelesand your supplier is in New York City And somebody owns the goods while they are moving across the country The F.O.B. designation determines who that “somebody” is If the goods are shipped F.O.B. New York or F.O.B. origin You will pay the transportation cost and you will own the merchandise once it is turned over to the carrier in NYC If the goods are shipped F.O.B. Los Angeles or F.O.B. destination The supplier will pay the transportation cost and they will own the merchandise until in reaches you in Los Angeles The owne