09 ohp slides 1

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INVENTORIES

Inventory Items

Flow of Inventory Costs

Cost of Goods

Available for

Sale

Ending

Inventory

Cost of

Goods Sold

Beginning

Inventory

Purchases

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Inventory Items

(Amounts in

millions)

Beginning Inventory P 276

+ Net purchases 1,348

= Cost of goods available for sale 1,624

- Ending inventory 317

= Cost of goods sold P 1,307

Types of companies

o Merchandising company

o Manufacturing company

o Service organization

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Cost of Inventory

1. Determining the Quantity of Inventory

o FOB (Free on Board)

FOB Shipping Point

FOB Destination

o Consigned Goods

2. Determining the Unit Cost of Inventory

Figuring the Cost of Inventory

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Inventory Costing Methods

1. Specific Unit Cost

2. Average Costs Method

3. First-in, First-out Cost

4. Last-in, First-out Cost

Inventory & Cost of Goods Sold under Average,

FIFO & LIFO Inventory Costing Methods

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Inventory Costing Methods

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Eff

ect

of

FIF

O,

LIF

O a

nd A

vera

ge C

ost

on Incom

e &

Incom

e

Tax

Eff

ect

on

Incom

e

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Eff

ect

of

FIF

O,

LIF

O a

nd A

vera

ge C

ost

on Incom

e &

Incom

e

Tax

Eff

ect

on

Incom

eTax

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Sam

ple

Pro

ble

m

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Accounting Conservatism

Lower-of-Cost or Market (LCM) Effects

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Lower-of-Cost

orMarket(LCM)Effects

Accounti

ng C

onse

rvati

sm

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Eff

ect

of

Invento

ry E

rrors

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Methods of Estimating Inventory

1. Gross Margin (Gross Profit) Method

Beginning inventory

+ Net purchases

= Cost of goods available for sale

- Cost of goods sold

= Ending inventory

Gross Margin Method of Estimating Inventory

(amounts assumed)

Beginning inventory ……………………………. P 140,000

Net purchases ……………………………………… 660,000

Cost of goods available for sale …………. 800,000

Cost of goods sold:

Net sales revenue…………………………….. P 1,000,000

Less estimated gross margin of 40%... 400,000

Estimated cost of goods sold …………… 600,000

Estimated cost of ending inventory ……. P 200,000

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Methods of Estimating Inventory

2.Retail Method

Retail Method of Estimating Inventory (amounts

assumed)

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Periodic and Perpetual Inventory System

Periodic Inventory System

Perpetual Inventory System

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Internal Control over Inventory

1. Physically counting inventory at least once a

year.

2. Maintaining efficient purchasing, receiving &

shipping procedures.

3. Storing inventory to prevent against theft,

damage & decay.

4. Limiting access to personnel.

5. Keeping perpetual inventory records for high-

unit-cost merchandise.

6. Purchasing inventory in economical quantities.

7. Keeping enough inventories on hand.

8. Avoid tying up money in items that are not

needed.

09 ohp slides 1

Business

Transcript of 09 ohp slides 1