Chapter 7

Reporting and interpreting cost of goods sold

and inventory

PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA

McGraw­Hill/Irwin Copyright © 2014 by The McGraw­Hill Companies, Inc. All rights reserved.7-1
Understanding the Business

Provide sufficient
quantities of high-
quality inventory.
Primary Goals of
Inventory
Management
Minimize the costs of
carrying inventory.

7-2
Items Included in Inventory

Merchandisers Manufacturing

Merchandise Raw
Inventory Materials

Work in
Process

Finished
Goods

7-3
 Costs Included in Inventory Purchases

The cost principle requires that

inventory be recorded at the price paid
or the consideration given.

Invoice
Freight-In
Price

Inspection Preparation
Costs Costs

Any purchase returns and allowances and

purchase discounts taken are subtracted.
7-4
Flow of Inventory Costs

7-5