Measuring and Reporting Inventories

Read this chapter. For many organizations, inventory represents a large portion of their assets, so it is important to be familiar with measurement and reporting techniques. Inventory is a major cost for many businesses, and a big source of potential opportunity for firms looking to improve their financial results.

Learning objectives

After studying this chapter, you should be able to:

  • Explain and calculate the effects of inventory errors on certain financial statement items.
  • Indicate which costs are properly included in inventory.
  • Calculate cost of ending inventory and cost of goods sold under the four major inventory costing methods using periodic and perpetual inventory procedures.
  • Explain the advantages and disadvantages of the four major inventory costing methods.
  • Record merchandise transactions under perpetual inventory procedure.
  • Apply net realizable value and the lower-of-cost-or-market method of inventory.
  • Estimate cost of ending inventory using the gross margin and retail inventory methods.
  • Analyze and use the financial results- inventory turnover ratio.

Source: Textbook Equity,
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