Understand how the value of inventory is reflected in the general ledger. Read why standard costs are often used by manufacturing companies as a valuation base for components and end items. Understand the cost adjustment mechanism, which ensures that costs are brought forward even if inventory transactions happen in a random manner. Learn how an item's average cost is dynamically calculated according to the selected average cost period.ĭistinguish expected cost (not yet invoiced) from actual cost and learn how it is managed in the general ledger. Learn how an item's unit cost is continuously updated with the cost of its latest transaction according to the item's costing method. Learn how item application entries dynamically link inventory decreases with increases to keep control of cost flows. Toĭistinguish the five different costing methods and their effect on cost flows. The following table describes a sequence of tasks, with links to the topics that describe them. It includes the reporting of manufacturing costs and inventory costs, that is, the value of items.Ĭentral principles to understand are that costing methods define how items are valued when they leave inventory, that cost adjustment updates the cost of goods sold with related purchase costs posted after the sale, and that inventory values must be posted to dedicated G/L accounts at regular intervals. Managing inventory costs is concerned with recording and reporting business operating costs.
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