Objectives: Chapter Eight
The following learning objectives for this chapter map to the curriculum design for our online university-level courses. These courses are offered through Utah State University, and result in the awarding of up to 6 hours of highly transferrable college credit. To learn more, check out the classroom link.
The correct components to include in inventory.
Identify three basic categories of inventory, and know where inventory is reported on the balance sheet.
What is meant by the term "F.O.B."?
How are goods in transit classified on the financial statements?
How are goods on consignment classified on the financial statements?
Inventory costing methods.
Understand cost of goods available for sale, and how this cost must be allocated to inventory and cost of goods sold.
Be able to apply inventory costing methods such as FIFO, LIFO, weighted average, and specific identification.
Distinguish between the physical flow of goods and their cost flow for accounting purposes.
Know the general impacts of alternative cost flow assumptions, with special attention to the tax and financial statement results.
Must inventory methods be used consistently?
The perpetual system for valuing inventory.
Distinguish between a periodic and a perpetual inventory system.
Calculate ending inventory and cost of goods sold under a perpetual system, using FIFO, LIFO, or moving average methods.
Understand how the accounting records are updated with a perpetual system (versus a periodic system).
Lower-of-cost-or-market inventory valuation adjustments.
What is the purpose of the lower-of-cost-or-market rule?
How is "market" generally defined in the lower-of-cost-or-market method?
Be able to perform lower-of-cost-or-market method computations.
Two inventory estimation techniques: the gross profit and retail methods.
Understand the occasional need for inventory estimates.
Be able to apply the gross profit method.
Understand the benefits and application of the retail inventory method.
Inventory management and monitoring, and the impact of errors.
Be able to calculate the inventory turnover ratio.
Understand the importance of managing inventory investment and activity.
Consider the impact of inventory errors, and note the effect of these errors on subsequent accounting periods.