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Q5-12RQ

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Horngren'S Financial And Managerial Accounting
Found in: Page 294

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Short Answer

How is the net cost of inventory calculated?

The net cost of inventory includes the beginning inventory, the purchases made during the year, and the closing inventory.

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Step by Step Solution

Meaning of Inventory

The term “inventory” refers to the goods or products stocked by a business entity with an intent to resell them and generate revenues for running the business activities.

Computation of net cost of inventory

The net cost of inventory is computed as follows:

The purchases should be net, i.e., purchase returns must be subtracted from the purchase account balance.

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