Chapter 6

1. safeguarding the inventory from damage or theft 2. reporting inventory in the financial statements

purchase order, receiving report and vendor's invoice

authorizes the purchase of the inventory from an approved vendor.

establishes an initial record of the receipt of the inventory.

count of inventory should be near year-end to make sure that the quantity of inventory is reported in the financial statements is accurate.

when identical units of merchandise are acquired at different unit costs during a period. in such cases, when an item is sold, it is necessary to determine its costs using a cost flow assumption and related inventory cost flow method.

1. FIFO (first in, first out) 2. LIFO (last in, first out) 3. Average Cost

first in first out, cost flow is in the order in which the costs were incurred.

last in, first out, cost flow is in the reverse order in which the costs were incurred.

cost flow is an average of the costs

the unit sold is identified with a specific purchase

the first units purchased are assumed to be sold, and the ending inventory is made up of the most recent purchases

the last units are assumed to be purchased and the ending inventory is made up of the first purchases.

if the cost of replacing inventory is lower than its recorded purchase cost, the lower of cost or market method is used to value the inventory.