1、Accounting,21st EditionWarren Reeve FessPowerPoint Presentation by Douglas CloudProfessor Emeritus of AccountingPepperdine University Copyright 2004 South-Western,a division of Thomson Learning.All rights reserved.Task Force Image Gallery clip art included in this electronic presentation is used wit
2、h the permission of NVTech Inc.Some of the action has been automated,so click the mouse when you see this lightning bolt in the lower right-hand corner of the screen.You can point and click anywhere on the screen.1.Summarize and provide examples of internal control procedures that apply to inventori
3、es.2.Describe the effect of inventory errors on the financial statement.3.Describe the three inventory cost flow assumptions and how they impact the income statement and balance sheet.4.Compute the cost of inventory under the perpetual inventory system,using the following cost methods:first-in,first
4、-out;last-in,first-out;average cost.5.Compute the cost of inventory under the periodic inventory system,using the following costing methods:first-in,first-out;last-in,first-out;average cost.6.Compare and contrast the use of the three inventory costing methods.7.Compute the proper valuation of invent
5、ory at other than cost,using the lower-of-cost-or-market and net realization value concepts.8.Prepare a balance sheet presentation of merchandise inventory.9.Estimate the cost of inventory,using the retail method and the gross profit method.10.Compute the interpret the inventory turnover ratio and n
6、umber of days sales in inventory.?Inventory is a significant asset and for many companies the largest asset.Inventory is central to the main activity of merchandising and manufacturing companies.Mistakes in determining inventory cost can cause critical errors in financial statements.Inventory must b
7、e protected from external risks(such as fire and theft)and internal fraud by employees.Receiving reportPurchase orderInvoiceJOURNALDescriptionNov.9Post.Ref.DateInventory 1 222 00Accounts Payable-XYZ Co.1 222 00Purchased merchandise onaccount.LIABILITIESOWNERSEQUITYREVENUESASSETSCOSTS&EXPENSES If mer
8、chandise inventory is.Cost of merchandise sold is.Gross profit and net income are.Ending owners equity is.overstated understated overstated overstatedNet Income If merchandise inventory is.Cost of merchandise sold is.Gross profit and net income are.Ending owners equity is.understated overstated unde
9、rstated understatedPurchased goodsSold goodsPurchased goodsSold goodsPurchased goodsSold goods40%30%20%10%0%43%34%19%4%FifoLifoAverageOther Item 127B Units Cost Price Jan.1Inventory10$204Sale7$3010Purchase82122Sale43128Sale23230Purchase1022Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTota
10、lUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCostJan.11020200 Item 127B Units Cost Price Jan.1Inventory10$204Sale7$3010Purchase82122Sale43128Sale23230Purchase1022Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCos
11、t The sale of 7 units leaves a balance of 3 units.Jan.11020200 472014032060Jan.11020200 Item 127B Units Cost Price Jan.1Inventory10$204Sale7$3010Purchase82122Sale43128Sale23230Purchase1022Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost
12、Qty.CostCostJan.11020200 472014032060 1082116832060821168 Because the purchase price of$21 is different than the cost of the previous 3 units on hand,the inventory balance of 11 units is accounted for separately.Item 127B Units Cost Price Jan.1Inventory10$204Sale7$3010Purchase82122Sale43128Sale23230
13、Purchase1022Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCostJan.11020200 472014032060 1082116832060821168 223206012121721147 Of the four units sold,three are from the first units in(fifo)at a cost of$20.Item 127B Units Cost
14、Price Jan.1Inventory10$204Sale7$3010Purchase82122Sale43128Sale23230Purchase1022Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCostJan.11020200 472014032060 1082116832060821168 223206012121721147 2822142521105 Item 127B Units Co
15、st Price Jan.1Inventory10$204Sale7$3010Purchase82122Sale43128Sale23230Purchase1022Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCostJan.11020200 472014032060 1082116832060821168 223206012121721147 2822142521105 301022220521105
16、1022220 Totals18$38813$26315$325Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCostJan.11020200Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCostJan.1102
17、0200 472014032060Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCostJan.11020200 472014032060 1082116832060821168Note that a new layer is formed.Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTotalUnitTotalUnitTotal Da
18、te Qty.Cost Cost Qty.CostCost Qty.CostCostJan.11020200 472014032060 1082116832060821168 22421843206042184Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCostJan.11020200 472014032060 1082116832060821168 22421843206042184 2822142
19、3206022142Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCostJan.11020200 472014032060 1082116832060821168 22421843206042184 28221423206022142 30102222032060221421022220Item 127BPurchasesCost of Mdse.SoldInventory BalanceUnitTo
20、talUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCostJan.11020200 472014032060 1082116832060821168 22421843206042184 28221423206022142 30102222032060221421022220 Totals18$38813$26615$322Fifo PeriodicJan.1 Beginning InventoryMar.10 PurchaseSept.21 PurchaseNov.18 Purchase1,000 units avail
21、able for sale during year1,000 units available for sale during year$10,400=$1,800Jan.1=3,000Mar.10=4,400Sept.21=1,200Nov.18Cost of merchandise available for saleA physical count on December 31 reveals that 700 of the 1,000 units have been sold.Using fifo,the first units purchased are theoretically t
22、he first units sold.We begin the count with January 1.1,000 units available for sale during year$10,400=$1,800Jan.1=3,000Mar.10=4,400Sept.21=1,200Nov.18=$0Jan.1=0Mar.10=2,200Sept.21$3,400Cost of merchandise available for sale$10,400Less ending inventory 3,400Cost of merchandise sold$7,000Jan.1200 un
23、its at$9Mar.10300 units at$10Sep.21400 units at$11Nov.18100 units at$12$1,800$3,000$4,400$1,200PurchasesMerchandiseAvailablefor Sale$1,800$3,000$2,200Cost ofMerchandiseSold200 units at$9$2,200$1,200MerchandiseInventory300 units at$10200 units at$11200 units at$11100 units at$121,000 units700 units30
24、0 unitsLifo PeriodicJan.1 Beginning InventoryMar.10 PurchaseSept.21 PurchaseNov.18 Purchase1,000 units available for sale during yearLifo PeriodicUsing lifo,the most recent batch purchased is considered the first batch of merchandise sold.Jan.1 Beginning InventoryMar.10 PurchaseSept.21 PurchaseNov.1
25、8 Purchase1,000 units available for sale during yearLifo PeriodicAssume again that 700 units were sold during the year.1,000 units available for sale during yearLifo Periodic=$1,800Jan.1=3,000Mar.10=4,400Sept.21=1,200Nov.18$10,400001,000Ending Inventory$2,800Cost of merchandise available for sale$10
26、,400Less ending inventory 2,800Cost of merchandise sold$7,600Lifo PeriodicJan.1200 units at$9Summary of Lifo PeriodicMar.10300 units at$10Sep.21400 units at$11Nov.18100 units at$12$1,800$3,000$4,400$1,200$1,800$1,000Cost ofMerchandiseSold200 units at$9$4,400$1,200100 units at$10200 units at$10400 un
27、its at$11100 units at$12$2,000700 units1,000 units300 unitsPurchasesMerchandiseAvailablefor Sale$1,800Cost of Merchandise SoldJan.1 Beginning InventoryMar.10 PurchaseSept.21 PurchaseNov.18 Purchase1,000 units available for sale during yearThe average cost periodic method is based on the average cost
28、 of identical units.1,000 units available for sale during year$10,400 Cost of merchandise available for saleCost of Merchandise Available for SaleUnits Available for Sale During Year=Average Unit Cost$10,4001,000 Units=$10.40 per UnitCost of merchandise available for sale$10,400Less ending inventory
29、($10.40 x 300)3,120Cost of merchandise sold$7,280To verify this amount,multiply 700 units sold times$10.40 to get the same$7,280.$3,8002,7004,6503,920Total$15,520$15,472$15,070 A400$10.25$9.50$4,100$3,800 B12022.5024.102,7002,892 C6008.007.754,8004,650 D28014.0014.753,9204,130UnitUnitInventoryCostMa
30、rketTotalTotal Lower ItemQuantityPricePriceCostMarketC or MThe market decline based on individual items($15,520$15,070)=$450 AssetsCurrent assets:Cash$19 400 00Accounts receivable$80 000 00Less allowance for doubtful accounts3 000 0077 000 00Merchandise inventory at lower of cost(first-in,first-out
31、method)or market216 300 00 Metro-ArtsBalance SheetDecember 31,2007Presentation of Merchandise Inventory on the Balance Sheet Retail method is based on relationship between cost of merchandise available for sale and the retail price.Retail prices of all merchandise must be accumulated and totaled.Inv
32、entory at retail is calculated at retail price of merchandise available for sale less net sales at retail.Ratio is calculated as cost divided by retail price.Inventory at retail price times cost ratio equals estimated cost of inventory.Cost RetailMerchandise inventory,Jan.1$19,400$36,000Purchases in
33、 January(net)42,600 64,000Merchandise available for sale$62,000$100,000Ratio of cost to retail price=$62,000$100,000=62%Sales for January(net)70,000Merchandise inventory,January 31,at retail$30,000 Cost RetailMerchandise inventory,Jan.1$19,400$36,000Purchases in January(net)42,600 64,000Merchandise
34、available for sale$62,000$100,000 Merchandise inventory,January 31,at cost($30,000 x 62%)$18,600Sales for January(net)70,000Merchandise inventory,January 31,at retail$30,000 Cost RetailMerchandise inventory,Jan.1$19,400$36,000Purchases in January(net)42,600 64,000Merchandise available for sale$62,00
35、0$100,0001.A gross profit percentage rate is estimated based on previous experience adjusted for known changes.2.Estimated gross profit is calculated by multiplying the estimated gross profit rate times the actual net sales.3.Estimated cost of merchandise sold is calculated by subtracting the gross
36、profit from actual sales.4.The cost of merchandise sold estimate is deducted from actual merchandise available for sale to determine the estimated cost of merchandise inventory.Merchandise inventory,January 1$57,000Purchases in January(net)180,000Merchandise available for sale Sales in January(net)$
37、250,000Less:Estimated gross profit Estimated cost of merchandise soldEstimated merchandise inventory,January 31($250,000 x 30%)75,000 175,000$62,000$237,000 SUPERVALU ZaleCost of merchandise sold$15,620,127,000$737,188,000Inventories:Beginning of year$1,115,529,000$478,467,000End of year 1,067,837,0
38、00571,669,000Total$2,183,366,000$1,050,136,000Average$1,091,683,000$525,068,000Use:Inventory turnover measures the relationship between the volume of goods sold and the amount of inventory carried during the period.Average daily cost of merchandise sold:$15,620,127,000/365$42,794,868$737,188,000/365$2,019,693Ending inventory$1,067,837,000$571,669,000 SUPERVALU ZaleUse:To assess the efficiency in the management of inventoryThe End
