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Inventories: Measurement


The next two chapters continue our study of assets by investigating the measurement and reporting issues involving inventories and the related expense—cost of goods sold. Inventory refers to the assets a company (1) intends to sell in the normal course of business, (2) has in production for future sale, or (3) uses currently in the production of goods to be sold.



Explain the difference between a perpetual inventory system and a periodic inventory system.

Explain which physical quantities of goods should be included in inventory.

Determine the expenditures that should be included in the cost of inventory.

Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Discuss the factors affecting a company's choice of inventory method.

Understand supplemental LIFO disclosures and the effect of LIFO liquidations on net income.

Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Determine ending inventory using the dollar-value LIFO inventory method.





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