80.When the figure for the cost of goods manufactured has been computed, it can betransferred to the cost of goods sold section of the income statement, as follows:Beginning balance, finished goods inventory$1,250Add cost of goods manufactured (computed in section
)1,600(3)Total cost of finished goods available for sale$2,850Less ending balance, finished goods inventory300Cost of goods sold$2,55090.Because the operations of service, retail, and manufacturing organizations differ, their financial statements differ as well. Because a service organization sells services, not products, it has no inventory account on its balance sheet. The cost of sales on its incomestatement reflects the net cost of the services sold. A retail organization, which purchases products ready for resale, maintains only one inventory account on its balance sheet. Calledthe Merchandise Inventory account, it reflects the costs of goods held for resale. The cost of goods sold on a retail organization’s income statement is simply the difference between thecost of goods available for sale and the ending merchandise inventory. A manufacturingorganization, because it creates a product, maintains three inventory accounts on its balancesheet: Materials Inventory, Work in Process Inventory, and Finished Goods Inventory. Itscost of goods sold equals the cost of goods available for sale minus ending finished goodsinventory.
Objective 4: Describe the flow of costs through a manufacturer’s inventory accounts.
100.A manufacturer maintains a
Materials Inventory account,
Work in Process Inventoryaccount,
Finished Goods Inventory account.
The balance in the Materials Inventoryaccount shows the cost of goods purchased but unused. The balance in the Work in ProcessInventory account shows the costs assigned to partially completed products. The balance inthe Finished Goods Inventory account shows the costs of products completed but not yetsold.110.Accountants track manufacturing costs and make changes in account balances by referringto the source documents that accompany the flow of costs through the production process.a0.The purchasing process begins with a
for materials. If the materialsare not on hand, the purchasing department sends a
to a supplier. A
documents the arrival of the materials. The company then receives a
for payment for the materials. The costs of these materials increasethe balance in the Materials Inventory account. b0.As production begins, the storeroom clerk receives an authorized
materials request form
specifying which materials are to be sent to the production area. The cost of thedirect materials transferred to production increases the balance of the Work in ProcessInventory account, and the cost of the indirect materials transferred increases the balance of the Overhead account. The costs of both types of materials decrease the balance of the Materials Inventory account.
are used to record productionemployees’ hours; the cost of their labor increases the Work in Process Inventoryaccount. A
job order cost card
records all costs incurred as the products move through production.c0.The cost of completed products decreases the balance of the Work in ProcessInventory account and increases the balance of the Finished Goods Inventory account.When a product is sold, a clerk prepares a
showsthe quantity of goods shipped and gives a description of them. As products are sold,