Topic 6

1. Topic 6 Inventories PowerPoint presentation by AFSH University Putra Malaysia

2. Learning Objectives • Define the meaning of inventory. • Identify the different classification of inventory. • Explain the importance of inventory. • Discuss the relevant internal control of inventory.

3. Inventory Definition MASB 2 defines inventories as assets: • Held for sale in the ordinary course of business; • In the process of production for such sale; or • In the form of materials or supplies to be consumed in the production process or in the rendering of services

4. Inventory Classification • Merchandise enterprise • merchandise inventory ready for sale • Manufacturing enterprise • May or may not be ready for sale i.e. raw materials, work in process and finished goods

5. The Importance of Inventory • Vital in the calculation of profit or lossInventory item is required to calculate COGS • Inventory item will be reported in Balance sheet usually the most significant current assets • Inventory amount should be control to avoid from being stolen; minimize loss • Inventory turnover must be active the faster the turnover, the higher the profit

6. Merchandising Operations • Merchandising businesses buy and resell inventory. • Revenues are referred to as sales revenue. • Expenses are divided into two categories: • Cost of goods sold • Operating expenses

7. Profit Measurement Process for a Merchandising Business

8. Relevant Internal Control: • Segregation of duties • counting should be done by employee who do not have custodial responsibility for the inventory • Counting should be performed for both periodic and perpetual inventory system • Independent internal verification there should be a second count by other employee

9. Relevant Internal Control: • Documentation procedure pre-numbered inventory tags should be used and all inventory tags should be accounted for • Independent internal verification supervisor should ascertain that all inventory items are tagged and that no items have more than one tag