1、沈阳大学国际商学院 International Business College of Shenyang University,Chapter 6,Inventories and Cost of Sales,沈阳大学国际商学院 International Business College of Shenyang University,Conceptual Chapter Objectives,C1: Identify the items making up merchandise inventory C2: Identify the costs of merchandise inventory
2、,沈阳大学国际商学院 International Business College of Shenyang University,Analytical Chapter Objectives,A1: Analyze the effects of inventory methods for both financial and tax reporting A2: Analyze the effects of inventory errors on current and future financial statements A3: Assess inventory management usin
3、g both inventory turnover and days sales in inventory,沈阳大学国际商学院 International Business College of Shenyang University,Procedural Chapter Objectives,P1: Compute inventory in a perpetual system using the methods of specific identification, FIFO, LIFO, and weighted average P2: Compute the lower of cost
4、 or market amount of inventory P3: Appendix 6A: Compute inventory in a periodic system using the methods of specific identification, FIFO, LIFO, and weighted average P4: Appendix 6B: Apply both the retail inventory and gross profit methods to estimate inventory.,沈阳大学国际商学院 International Business Coll
5、ege of Shenyang University,Determining Inventory Items,Merchandise inventory includes all goods that a company owns and holds for sale, regardless of where the goods are located when inventory is counted.,Items requiring special attention include:,Goods in Transit,Goods Damaged or Obsolete,Goods on
6、Consignment,C 1,沈阳大学国际商学院 International Business College of Shenyang University,Goods in Transit,C 1,沈阳大学国际商学院 International Business College of Shenyang University,Goods on Consignment,Merchandise is included in the inventory of the consignor, the owner of the inventory.,Consignor,Consignee,Thanks
7、for selling my inventory in your store.,C 1,沈阳大学国际商学院 International Business College of Shenyang University,Goods Damaged or Obsolete,Damaged or obsolete goods are not counted in inventory if they cannot be sold.,Cost should be reduced to net realizable value if they can be sold.,C 1,沈阳大学国际商学院 Inter
8、national Business College of Shenyang University,Determining Inventory Costs,Invoice Cost,Include all expenditures necessary to bring an item to a salable condition and location.,Minus Discounts and Allowances,Plus Import Duties,Plus Freight,Plus Storage,Plus Insurance,C 2,沈阳大学国际商学院 International Bu
9、siness College of Shenyang University,Internal Controls and Taking a Physical Count,Most companies take a physical count of inventory at least once each year.When the physical count does not match the Merchandise Inventory account, an adjustment must be made.,C 2,沈阳大学国际商学院 International Business Col
10、lege of Shenyang University,Inventory Costing Under a Perpetual System,Inventory affects . . .,The matching principle requires matching cost of sales with sales.,Balance Sheet,Income Statement,P1,沈阳大学国际商学院 International Business College of Shenyang University,Inventory Costing Under a Perpetual Syst
11、em,Accounting for inventory requires several decisions . . .,Costing Method Specific Identification, FIFO, LIFO, or Weighted AverageInventory System Perpetual or Periodic,P1,沈阳大学国际商学院 International Business College of Shenyang University,Frequency in Use of Inventory Methods,P1,沈阳大学国际商学院 Internation
12、al Business College of Shenyang University,Inventory Cost Flow Assumptions,First-In, First-Out (FIFO),Assumes costs flow in the order incurred.,Last-In, First-Out (LIFO),Assumes costs flow in the reverse order incurred.,Weighted Average,Assumes costs flow at an average of the costs available.,P1,沈阳大
13、学国际商学院 International Business College of Shenyang University,Inventory Costing Illustration,P1,沈阳大学国际商学院 International Business College of Shenyang University,Specific Identification,When units are sold, the specific cost of the unit sold is added to cost of goods sold.,P1,沈阳大学国际商学院 International Bu
14、siness College of Shenyang University,Specific Identification,The above purchases were made in August. On August 14, a company sold eight bikes originally costing $91 and 12 bikes originally costing $106.,P1,沈阳大学国际商学院 International Business College of Shenyang University,The Cost of Goods Sold for t
15、he August 14 sale is $2,000. 8 bikes 91 = $ 728 12 bikes 106 = $1,272 After this sale, there are five units in inventory at $500: 2 bikes $91 = $ 182 3 bikes $106 = $ 318,Specific Identification,P1,沈阳大学国际商学院 International Business College of Shenyang University,Additional purchases were made on Augu
16、st 17 and 28. The cost of the 23 items sold on August 31 were as follows: 2 $91 3 $106 15 $115 3 $119,Specific Identification,P1,沈阳大学国际商学院 International Business College of Shenyang University,Specific Identification,Cost of Goods Sold for August 31 = $2,582,P1,沈阳大学国际商学院 International Business Colle
17、ge of Shenyang University,Specific Identification,After the August 31 sale, there are 12 units in inventory at $1,408: 5 $115 7 $119,P1,沈阳大学国际商学院 International Business College of Shenyang University,Specific Identification,Balance Sheet Inventory = $1,408,Income Statement COGS = $4,582,P1,沈阳大学国际商学院
18、 International Business College of Shenyang University,Specific Identification,Here are the entries to record the purchases and sales. The numbers in red are determined by the cost flow assumption used.,All purchases and sales are made on credit. The selling price of inventory was as follows:8/14 $1
19、30 8/31 150,P1,沈阳大学国际商学院 International Business College of Shenyang University,First-In, First-Out (FIFO),Cost of Goods Sold,Ending Inventory,Oldest Costs,Recent Costs,P1,沈阳大学国际商学院 International Business College of Shenyang University,First-In, First-Out (FIFO),The above purchases were made in Augus
20、t. On August 14, the company sold 20 bikes.,P1,沈阳大学国际商学院 International Business College of Shenyang University,First-In, First-Out (FIFO),The Cost of Goods Sold for the August 14 sale is $1,970. After this sale, there are five units in inventory at $530: 5 $106,P1,沈阳大学国际商学院 International Business Co
21、llege of Shenyang University,First-In, First-Out (FIFO),Additional purchases were made on August 17 and 28. Twenty-three bikes were sold on August 31.,P1,沈阳大学国际商学院 International Business College of Shenyang University,First-In, First-Out (FIFO),Cost of Goods Sold for August 31 = $2,600,P1,沈阳大学国际商学院
22、International Business College of Shenyang University,First-In, First-Out (FIFO),After the August 31 sale, there are 12 units in inventory at $1,420: 2 $115 10 $119,P1,沈阳大学国际商学院 International Business College of Shenyang University,First-In, First-Out (FIFO),Balance Sheet Inventory = $1,420,Income S
23、tatement COGS = $4,570,P1,沈阳大学国际商学院 International Business College of Shenyang University,First-In, First-Out (FIFO),Here are the entries to record the purchases and sales entries. The numbers in red are determined by the cost flow assumption used.,All purchases and sales are made on credit. The sel
24、ling price of inventory was as follows:8/14 $130 8/31 150,P1,沈阳大学国际商学院 International Business College of Shenyang University,Last-In, First-Out (LIFO),Cost of Goods Sold,Ending Inventory,Recent Costs,Oldest Costs,P1,沈阳大学国际商学院 International Business College of Shenyang University,Last-In, First-Out (
25、LIFO),The above purchases were made in August. On August 14, the company sold 20 bikes.,P1,沈阳大学国际商学院 International Business College of Shenyang University,Last-In, First-Out (LIFO),The Cost of Goods Sold for the August 14 sale is $2,045. After this sale, there are five units in inventory at $455: 5
26、$91,P1,沈阳大学国际商学院 International Business College of Shenyang University,Last-In, First-Out (LIFO),Additional purchases were made on August 17 and 28. Twenty-three bikes were sold on August 31.,P1,沈阳大学国际商学院 International Business College of Shenyang University,Last-In, First-Out (LIFO),Cost of Goods S
27、old for August 31 = $2,685,P1,沈阳大学国际商学院 International Business College of Shenyang University,Last-In, First-Out (LIFO),After the August 31 sale, there are 12 units in inventory at $1,260: 5 $91 7 $115,P1,沈阳大学国际商学院 International Business College of Shenyang University,Last-In, First-Out (LIFO),Balan
28、ce Sheet Inventory = $1,260,Income Statement COGS = $4,730,P1,沈阳大学国际商学院 International Business College of Shenyang University,Last-In, First-Out (LIFO),Here are the entries to record the purchases and sales entries. The numbers in red are determined by the cost flow assumption used.,All purchases an
29、d sales are made on credit. The selling price of inventory was as follows:8/14 $130 8/31 150,P1,沈阳大学国际商学院 International Business College of Shenyang University,Weighted Average,When a unit is sold, the average cost of each unit in inventory is assigned to cost of goods sold.,P1,沈阳大学国际商学院 Internation
30、al Business College of Shenyang University,Weighted Average,The above purchases were made in August. On August 14, 20 bikes were sold.,P1,沈阳大学国际商学院 International Business College of Shenyang University,Weighted Average,First, we need to compute the weighted average cost per unit of items in inventor
31、y.,P1,沈阳大学国际商学院 International Business College of Shenyang University,Weighted Average,The Cost of Goods Sold for the August 14 sale is $2,000. After this sale, there are five units in inventory at $500:,P1,沈阳大学国际商学院 International Business College of Shenyang University,Weighted Average,Additional p
32、urchases were made on August 17 and 28. Twenty-three bikes were sold on August 31.,What is the weighted average cost per unit of items in inventory?,P1,沈阳大学国际商学院 International Business College of Shenyang University,Weighted Average,P1,沈阳大学国际商学院 International Business College of Shenyang University,
33、Weighted Average,Cost of Goods Sold for August 31 = $2,622,P1,沈阳大学国际商学院 International Business College of Shenyang University,Weighted Average,After the August 31 sale, there are 12 units in inventory at $1,368: 12 $114,P1,沈阳大学国际商学院 International Business College of Shenyang University,Weighted Aver
34、age,Balance Sheet Inventory = $1,368,Income Statement COGS = $4,622,P1,沈阳大学国际商学院 International Business College of Shenyang University,Weighted Average,Here are the entries to record the purchases and sales entries for Trekking. The numbers in red are determined by the cost flow assumption used.,All
35、 purchases and sales are made on credit. The selling price of inventory was as follows:8/14 $130 8/31 150,P1,沈阳大学国际商学院 International Business College of Shenyang University,Financial Statement Effects of Costing Methods,Because prices change, inventory methods nearly always assign different cost amo
36、unts.,A1,沈阳大学国际商学院 International Business College of Shenyang University,Financial Statement Effects of Costing Methods,Advantages of Methods,First-In, First-Out,Weighted Average,Last-In, First-Out,A1,沈阳大学国际商学院 International Business College of Shenyang University,Tax Effects of Costing Methods,The
37、Internal Revenue Service (IRS) identifies several acceptable methods for inventory costing for reporting taxable income.,If LIFO is used for tax purposes, the IRS requires it be used in financial statements.,A1,沈阳大学国际商学院 International Business College of Shenyang University,Consistency in Using Cost
38、ing Methods,The consistency principle requires a company to use the same accounting methods period after period so that financial statements are comparable across periods.,A1,沈阳大学国际商学院 International Business College of Shenyang University,Lower of Cost or Market,Inventory must be reported at market
39、value when market is lower than cost.,Can be applied three ways: (1) separately to each individual item. (2) to major categories of assets. (3) to the whole inventory.,Defined as current replacement cost (not sales price). Consistent with the conservatism principle.,P2,沈阳大学国际商学院 International Busine
40、ss College of Shenyang University,Lower of Cost or Market,A motorsports retailer has the following items in inventory:,P2,沈阳大学国际商学院 International Business College of Shenyang University,Lower of Cost or Market,Here is how to compute lower of cost or market for individual inventory items.,P2,沈阳大学国际商学
41、院 International Business College of Shenyang University,Lower of Cost or Market,Here is how to compute lower of cost or market for the two groups of inventory items.,P2,沈阳大学国际商学院 International Business College of Shenyang University,Lower of Cost or Market,Here is how to compute lower of cost or market for the entire inventory.,P2,沈阳大学国际商学院 International Business College of Shenyang University,Financial Statement Effects of Inventory Errors,Income Statement Effects,Exh. 5.10,
