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such sale or in the form of materials/supplies to be consumed in the production process or in the
rendering of services
CLASSES OF INVENTORIES
1. TRADING CONCERN buys & sells goods in the same form purchased
“Merchandise Inventory”
2. MANUFACTURING CONCERN converts purchased goods into another form before selling
a. Finished goods completed products
b. Goods in process partially completed products
c. Raw materials physically incorporated; direct materials or labor
d. Factory or manufacturing supplies not physically incorporated; indirect materials or
labor; supplies with insignificant amount
“All goods to which the entity has title shall be included in the inventory, regardless of location.”
LEGAL TEST
It is an accepted accounting procedure to record the installment sale as a regular sale involving
deferred income on the part of the seller & as a regular purchase on the part of the buyer.
Thus, goods sold on installment are included in the inventory of the buyer & excluded from the
inventory of the seller.
a. FOB Destination transfer of title is only upon receipt of the goods by the buyer at the point of
destination; goods in transit are still the property of the seller
b. FOB Shipping point transfer of title is upon shipment of the goods; goods in transit are the
property of the buyer
“During an accounting period, the accountant normally records purchases when goods are received and
sales when goods are shipped, regardless of the precise moment at which title passed.”
“However, accountant should carefully analyze the invoice terms of goods that are in transit at the end
of the accounting period to determine who has legal title.”
“Accordingly, adjustments should be made if errors are committed in recording purchases & sales.”