merchandise inventory l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Merchandise Inventory PowerPoint Presentation
Download Presentation
Merchandise Inventory

Loading in 2 Seconds...

play fullscreen
1 / 45

Merchandise Inventory - PowerPoint PPT Presentation


  • 582 Views
  • Uploaded on

Merchandise Inventory Chapter 9 Account for inventory by the perpetual and periodic systems. Objective 1 Inventory Accounting Systems Perpetual systems maintain a running record to show the inventory on hand at all times. Periodic systems do not keep a

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Merchandise Inventory' - paul


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
objective 1
Account for inventory

by the perpetual

and periodic systems.

Objective 1
inventory accounting systems
Inventory Accounting Systems

Perpetual systems maintain a running record

to show the inventory on hand at all times.

Periodic systems do not keep a

continuous record of inventory on hand.

perpetual system
Perpetual System

Debit Inventory

Credit Cash or Accounts Payable

Debit Cash or Accounts Receivable

Credit Sales Revenue

Debit Cost of Goods Sold

Credit Inventory

perpetual system5
Perpetual System

Item: Teva Sandals

Quantity Quantity Quantity

Date Received Sold on Hand

Nov. 1

5

7

12

26

30

Totals

25

25

50

6

13

21

40

10

4

29

16

41

20

20

cost of goods sold
Cost of Goods Sold

Beginning

Inventory

$100,000

Net

Purchases

$560,000

+

=

Ending

Inventory

$120,000

Cost of Goods

Available for

Sale $660,000

Cost of Goods

Sold

$540,000

=

gross profit
Gross Profit

Sales revenues – Cost of goods sold =

Gross margin (before operating expenses)

Gross margin – Operating expenses =

Net income

cost of goods sold model
Cost-of-Goods-Sold Model

Budgeted Cost of Goods Sold

+

Budgeted Ending Inventory

Budgeted Cost of Goods Available for Sale

=

Actual Beginning Inventory

=

Purchases

computing the cost of inventory
Computing the Cost of Inventory
  • Physical count is made at least once a year, even with a perpetual system.
  • Consigned goods are excluded.

Cost of inventory on hand = Quantity × unit cost

periodic system
Periodic System
  • At the end of the period make a physical count and apply unit cost to determine ending inventory.
  • Inventory purchases are debited to the purchases account.
  • The inventory account carries the beginning inventory balance until adjusted at period end.
periodic system11
Periodic System

Inventory

Purchases

100,000

Beginning

Balance

100,000

Beginning

Balance

560,000

Purchases

560,000

Purchases

120,000

Ending

Balance

Cost of Goods Sold

120,000

Ending

Balance

100,000

560,000

540,000

Accounts Payable

560,000

Purchases

objective 2
Apply the inventory costing

methods: specific unit cost,

weighted-average cost,

FIFO, and LIFO.

Objective 2
units purchased in 200x
Units Purchased in 200X

January 8 20 units @ $20 = $ 400

May 19 55 units @ $30 = $1,650

October 23 25 units @ $31 = $ 775

Total units 100

Units sold 70

Units left 30

units sold and in ending inventory
Units Sold and in Ending Inventory

Units sold by date:

Jan 5 17

May 19 33

Oct 23 20

Total sales 70

30 units left in inventory

specific identification
Specific Identification

20 Units @ $31

5 Units @ $31

Cost of Goods Sold

Oct 23 $ 620

May 19 990

Jan 5 340

Total $1,950

33 Units @ $30

22 Units @ $30

17 Units @ $20

3 Units @ $20

specific identification16
Specific Identification

20 Units @ $31

5 Units @ $31

Ending Inventory

Oct 23 $155

May 660

Jan 60

Total $875

33 Units @ $30

22 Units @ $30

17 Units @ $20

3 Units @ $20

weighted average
Weighted Average

25 Units @ $31 (Oct)

= $ 775

= 1,650

= 400

= $2,825 Total Cost

55 Units @ $30 (May)

20 Units @ $20 (Jan)

100 Total Units

weighted average18
Weighted Average

$2,825 total cost/100 units = $28.25/unit

Cost of goods sold = 70 × $28.25 = $1977.50

Ending inventory = 30 × $28.25 = $847.50

first in first out
First-In, First-Out

25 Units @ $31 (Oct)

Cost of Goods Sold

Jan $ 400

May 1,500

Total $1,900

5 Units @ $30 (May)

50 Units @ $30

20 Units @ $20 (Jan)

first in first out20
First-In, First-Out

25 Units @ $31 (Oct)

Ending Inventory

Oct $775

May 150

Total $925

5 Units @ $30 (May)

50 Units @ $30

20 Units @ $20 (Jan)

last in first out
Last-In, First-Out

25 Units @ $31 (Oct)

Cost of Goods Sold

Oct $ 775

May 1,350

Total $2,125

45 Units @ $30 (May)

10 Units @ $30

20 Units @ $20 (Jan)

last in first out22
Last-In, First-Out

25 Units @ $31 (Oct)

Ending Inventory

Oct $300

May 400

Total $700

45 Units @ $30 (May)

10 Units @ $30

20 Units @ $20 (Jan)

comparison of methods
Comparison of Methods

EndingInventory

Specific identification $875.00

FIFO $925.00

LIFO $700.00

Weighted-average $847.50

comparison of methods24
Comparison of Methods

Cost of Goods Sold

Specific identification $1,965.00

FIFO $1,900.00

LIFO $2,125.00

Weighted-average $1,977.50

comparison of methods25
Comparison of Methods
  • Gross Margin from Sales:
  • Specific identification $1,035.00
  • FIFO $1,100.00
  • LIFO $ 875.00
  • Weighted-average $1,022.50

When prices are rising LIFO produces

the lowest income and lowest income tax.

objective 3
Identify the income effects

and the tax effects of the

inventory costing methods.

Objective 3
the income tax advantage of lifo
The Income Tax Advantage of LIFO
  • During periods of inflation, LIFO’s income is the lowest.
  • The most attractive feature of LIFO is reduced income tax payments.
lifo liquidation
LIFO Liquidation
  • When prices are rising...
  • the company draws down inventory quantities below the level of the previous period which releases older costs to the income statement.
perpetual system fifo example
Perpetual System FIFO Example
  • Many companies keep their perpetual inventory records in quantities only.
  • Other companies keep perpetual records in both quantities and dollar cost.
perpetual system fifo example31
Perpetual System FIFO Example

Deckers Outdoor

Item: Teva Sandals

Received Sold Balance on Hand

Unit Unit Unit

Date Qty. Cost Total Qty. Cost Total Qty. Cost Total

Nov. 1 10 $30 $300

5 6 $30 $180 4 30 120

7 25 $31 $775 4 30 120

25 31 775

12 4 30 120

9 31 279 16 31 496

perpetual system fifo example32
Perpetual System FIFO Example

Deckers Outdoor

Item: Teva Sandals

Received Sold Balance on Hand

Unit Unit Unit

Date Qty. Cost Total Qty. Cost Total Qty. Cost Total

Nov. 26 25 $32 $ 800 16 $31 $496

25 32 800

30 16 $31 496 25 32 800

5 32 160 20 32 640

Totals 50 $1,575 40 $1,235 20 $32 $640

accounting principles consistency
Accounting Principles: Consistency

The business should use the same accounting

methods and procedures from one period to the next.

A company may change inventory methods, but it

must disclose the effects of the change on net income.

accounting principles disclosure
Accounting Principles: Disclosure

The financial statements

should report enough

information to enable

an outsider to make

knowledgeable decisions

about the company.

accounting principles materiality
Accounting Principles: Materiality

An item is material if it has the potential

to alter a statement user’s decision.

Materiality is specific to

the entity being evaluated.

accounting principles conservatism
Accounting Principles: Conservatism

Err on the side

of caution when

reporting any item in

the financial statements.

objective 4
Apply the lower-of-cost-

or-market rule to inventory.

Objective 4
lower of cost or market
Lower-of-Cost-or-Market
  • An asset is reported at the lower of its historical cost or market (replacement) value.
  • If the replacement cost falls below its historical cost, the business must write down the value of its inventory.
lower of cost or market example
Lower-of-Cost-or-Market Example
  • Cost of inventory: $3,000
  • Market value at balance sheet date: $2,200
  • What is the journal entry?

December 31

Cost of Goods Sold 800

Inventory 800

Write down inventory to LCM

objective 5
Determine the effects of

inventory errors on cost of

goods sold and net income.

Objective 5
inventory errors
Inventory Errors
  • If inventory is computed incorrectly, how many years of financial statements will it affect?
  • Two years
  • The current year’s ending inventory is next year’s beginning inventory.
objective 6
Estimate ending inventory

by the gross profit method.

Objective 6
gross profit method example
Gross Profit Method Example

Net Sales $150,000

Gross Profit Margin 31.5%

Beginning Inventory $ 18,500

Net Purchases $110,500

Net Sales $150,000

– Gross Profit of 31.5% 47,250

= Cost of Goods Sold $102,750

gross profit method example44
Gross Profit Method Example

Beginning

Inventory

$18,500

Net

Purchases

$110,500

+

=

Ending

Inventory

$26,250

Cost of Goods

Available for

Sale $129,000

Cost of Goods

Sold

$102,750

=