ADM 1340 Lecture Notes - Lecture 6: Inventory Turnover, Canadian Tire, Perpetual Inventory
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ADM 1340 Full Course Notes
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Explain financial statement effects of inventory cost determination methods. 2 steps to determine inventory quantities: take physical inventory of goods on hand. All companies need to determine quantity of inventory @ end of each accounting period: for company using perpetual or periodic inventory system. Involves actually counting, weighing, or measuring each kind of inventory on hand. Good system of internal control minimises errors in counting inventory: determine ownership of goods. 2 methods of cost determination: specific identification method. Used when goods are not ordinarily interchangeable. Reports ending inventory at its actual cost. Normally only used in perpetual inventory system: cost formula method. Assume flow of costs that may not be the same as actual flow of goods. First-in first-out (fifo: assumes earliest goods purchased are 1st to be sold & recognized as cogs, can be used in perpetual & periodic systems (results for both systems = same)