Inventories: Measurement - PowerPoint PPT Presentation

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  1. Inventories: Measurement Sid Glandon, DBA, CPA Associate Professor of Accounting

  2. Classification • Merchandising Inventory • All costs of getting merchandise ready for sale • Manufacturing Inventory • Raw materials • Work in process • Raw materials • Labor • Overhead • Finished goods

  3. Inventory Control • Perpetual Inventory System • Merchandise inventory • Cost of goods sold • Periodic Inventory System • Purchases • Purchase returns and allowances • Purchase discounts • Freight in

  4. Perpetual Inventory System

  5. Periodic Inventory System

  6. Year-End Adjusting Journal Entry: Periodic Inventory System

  7. Physical Goods in Inventory • Goods in transit • f.o.b. shipping point • f.o.b. destination • Consigned goods • Sales returns • Sales with buyback agreement • Sales with high rates of return

  8. Cost of Inventory • Purchases • Purchase returns • Purchase discounts • Gross method • Record discount when payment is made • Net method • Assume discount will be taken • Record interest expense on discounts not taken • Freight-in

  9. Perpetual Inventory System: Partial Income Statement

  10. Periodic Inventory System: Partial Income Statement

  11. Cost Flow Assumptions • Specific identification • Average cost • Periodic, weighted average for period • Perpetual, moving weighted average • FIFO (first-in, first-out) • LIFO (last-in, first-out) • Periodic, based on cost flow during period • Perpetual, based on each transaction

  12. Dollar-Value LIFO • Measured in terms of dollar value, not physical quantity of goods • All amounts are converted to base-year prices • A layer is formed when • Ending inventory exceeds beginning inventory (at base-year prices)