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1、Chapter 6,Inventories 存货,Study Objectives,Describe the steps in determining inventory quantitiesPrepare the entries for purchases and sales of inventory under a periodic inventory systemDetermine cost of goods sold under a periodic inventory systemIdentify the unique features of the income statement
2、 for a merchandiser using a periodic inventory system,Study Objectives,Explain the basis of accounting for inventories and describe the inventory cost flow methodsExplain the financial statement and tax effects of each of the inventory cost flow methodsExplain the lower of cost or market basis of ac
3、counting for inventories,Study Objectives,Indicate the effects of inventory errors on the financial statementsCompute and interpret the inventory turnover ratio,INVENTORY BASICS,In the balance sheet of merchandising and manufacturing companies,inventory is frequently the most significant current ass
4、etIn the income statement,inventory is vital in determining the results of operations for a particular periodGross profit(net sales-cost of goods sold)is closely watched by management,owners,and other interested parties,MERCHANDISE INVENTORY CHARACTERISTICS,Merchandise inventory has two common chara
5、cteristics:it is owned by the company andit is in a form ready for sale to customers in the ordinary course of business,CLASSIFYING INVENTORY IN A MANUFACTURING ENVIRONMENT,Unlike merchandise inventory,manufacturing inventory may not yet be ready for saleAs a result,inventory is usually classified i
6、nto three categories:,Finished goods,inventory which is completed and ready for sale.Work in process,inventory in various stages of production and not yet completed.Raw materials,components on hand waiting to be used in production.,DETERMINING INVENTORY QUANTITIES,In order to prepare financial state
7、ments,it is necessary to determine the number of units of inventory owned by the company at the statement date,and to value them,DETERMINING INVENTORY QUANTITIES,The determination of inventory quantities involvestaking a physical inventory of goods on hand determining the ownership of goods.,DETERMI
8、NING INVENTORY QUANTITIES,Taking a physical inventory involves counting,weighing or measuring each kind of inventory on hand.,TAKING A PHYSICAL INVENTORY,A company,in order to minimize errors in taking the inventory,should adhere to internal control内部控制 principles by adopting the following procedure
9、s:Employees who do not have custodial responsibility for the inventory should do the counting.Each counter should establish the authenticity of each inventory item,TAKING A PHYSICAL INVENTORY,Another employee should make a second countAll inventory tags should be pre-numbered and accounted forAt the
10、 end of the count,a designated supervisor should ascertain that all inventory items are tagged and that no items have more than one tag.,Goods in transit在途商品 should be included in the inventory of the party that has legal title to the goods.For FOB(free on board)shipping point,ownership of the goods
11、 passes to the buyer when the public carrier accepts the goods from the seller.,DETERMINING OWNERSHIP OF GOODS,PublicCarrier,FOB Shipping Point,Ownership passes Here to buyer,For FOB destination point,legal title to the goods remains with the seller until the goods reach the buyer.,DETERMINING OWNER
12、SHIP OF GOODS,FOB Destination Point,PublicCarrier,Ownership passes here to buyer,DETERMINING OWNERSHIP OF GOODS IN TRANSIT,Under a consignment arrangement代销,the holder of the goods(called the consignee)does not own the goods.Ownership remains with the shipper of the goods(consignor)until the goods a
13、re actually sold to a customer.Consigned goods should be included in the consignors inventory not the consignees inventory.,Consignee Company,DETERMINING OWNERSHIP OF GOODS IN TRANSIT,Consignor,INVENTORY ACCOUNTING SYSTEMS,One of two basic systems of accounting for inventories may be used:the perpet
14、ual inventory system 永续存货系统 the periodic inventory system 盘存制,PERIODIC INVENTORY SYSTEM,In a periodic inventory system,no attempt is made on the date of sale to record the cost of the merchandise sold.Instead,a physical inventory count is taken at the end of the period to determine the cost of the m
15、erchandise then on hand andthe cost of goods sold during the period,When merchandise is purchased for resale to customers,the temporary account,Purchases采购,is debited for the cost of goods.Like sales,purchases may be made for cash or on account(credit).,PURCHASES OF MERCHANDISE,The purchase is norma
16、lly recorded by the purchaser when the goods are received from the seller.Each credit purchase should be supported by a purchase invoice购买发票.,PURCHASES OF MERCHANDISE,PERIODIC SYSTEM TRANSACTIONS,PERIODIC SYSTEM TRANSACTIONS,Purchases is a temporary account whose normal balance is a debit.,PERIODIC
17、SYSTEM TRANSACTIONS,PERIODIC SYSTEM TRANSACTIONS,Purchases return and allowance is a temporary account whose normal balance is a credit.,PERIODIC SYSTEM TRANSACTIONS,Freight-in is a temporary account whose normal balance is a debit.,PERIODIC SYSTEM TRANSACTIONS,PERIODIC SYSTEM TRANSACTIONS,Purchase
18、discount is a temporary account whose normal balance is a credit,COST OF GOODS SOLD,To determine the cost of goods sold under a periodic inventory system,it is necessary to:record purchases of merchandisedetermine the cost of goods purchaseddetermine the cost of goods on hand at the beginning and en
19、d of the accounting period,NORMAL BALANCES:COST OF GOODS PURCHASED ACCOUNTS,We used 4 accounts to record the purchase of inventory under a periodic inventory system.These accounts are:,DebitCreditCreditDebit,COST OF GOODS PURCHASED(COGP),To determine cost of goods purchased:Subtract Purchase Returns
20、 and Allowances and Purchase Discounts from Purchases to produce net purchases.Add Freight-in to net purchases to produce cost of goods purchased,COGP=Purchases Purchase return Purchase discounts+freight-in,COMPUTATION OF NET PURCHASES AND COST OF GOODS PURCHASED,Cost of Goods Purchased is determine
21、d as follows:Purchases$325,000Less:Purchases returns and allowances 10,400Purchase discounts 6,800 17,200Net purchases 307,800Add:Freight-in 12,200Cost of goods purchased$320,000,DETERMINING COST OF GOODS ON HAND,Under the periodic method,cost of inventory on hand is determined from a physical inven
22、tory requiring:Counting the units on hand for each inventory itemApplying unit costs to the total units on hand for each inventory itemTotaling the cost of each item of inventory to determine total cost of goods on hand,DETERMINING COST OF GOODS SOLD,Computing cost of goods sold involves 2 steps:Add
23、 the cost of goods purchased to the beginning cost of goods on hand to obtain the cost of goods available for sale.Subtract the ending cost of goods on hand from the cost of goods available for sale to arrive at the cost of goods sold,Beginning inventory$36,000Add:Cost of goods purchased 320,000Cost
24、 of goods available for sale 356,000Less:Ending inventory 40,000Cost of goods sold$316,000,COMPUTATION OF COST OF GOODS SOLD,Cost of Goods Sold is determined as follows:,ILLUSTRATION 6-5 INCOME STATEMENT FOR A MERCHANDISING COMPANY USING A PERIODIC INVENTORY SYSTEM,SELLERS ELECTRONIX INC.,Income Sta
25、tement,For the Year Ended December 31,2002,Sales revenues,Sales,$480,000,Less:Sales returns and allowances,$12,000,Sales discounts,8,000,20,000,Net sales,460,000,Cost of goods sold,Inventory,January 1,36,000,Purchases,$325,000,Less:Purchases returns and allowances,10,400,Purchases discounts,6,800,Ne
26、t purchases,307,800,Add:Freight-in,12,200,Cost of goods purchased,320,000,Cost of goods available for sale,356,000,Inventory,December 31,40,000,Cost of goods sold,316,000,Gross profit,144,000,Operating expenses,Store salaries expense,45,000,Rent expense,19,000,Utilities expense,17,000,Advertising ex
27、pense,16,000,Depreciation expense store equipment,8,000,Freight-out,7,000,Insurance expense,2,000,Total operating expenses,114,000,Net income,$30,000,The income statement under a periodic inventory system contains 3 distinctive features:1 a sales revenue section,2 a cost of goods sold section,and3 g
28、ross profit.,INVENTORIABLE COSTS,The primary basis of accounting for inventories is cost as required by the cost principleUnder the matching principle,the major objective in accounting for inventories is the matching of appropriate costs with sales revenues These two principles guide the decisions a
29、bout determining and allocating inventoriable costs,DETERMINING INVENTORIABLE COSTS,All costs necessary to acquire the goods and place them in a condition ready for sale are included in inventoriable costsInventoriable costs include the invoice price plus freight-in less purchase discounts and purch
30、ase returns and allowances,DETERMINING INVENTORIABLE COSTS,Inventoriable costs may be regarded as a pool of costs that consist of two elements:Cost of the beginning inventory andCost of the goods purchased during the yearThe sum of these elements equals the cost of goods available for sale,DETERMINI
31、NG INVENTORIABLE COSTS,Inventoriable costs are allocated between ending inventory and cost of goods soldUnder a periodic inventory system,the allocation is made at the end of the accounting period:,DETERMINING INVENTORIABLE COSTS,The costs assignable to the ending inventory are determinedThe cost of
32、 the ending inventory is subtracted from the cost of goods available for sale to determine the cost of goods soldCost of goods sold is then deducted from sales revenues in accordance with the matching principle,Beginning Inventory,Cost of goods Purchased,+,Cost of goods available,Ending inventory,Co
33、st of goodssold,Beginning inventory+cost of goods purchased=cost of goods available Ending inventory+cost of goods sold,ALLOCATION(MATCHING)OF POOL OF COSTS,$120,000$15,000$105,000,USING ACTUAL PHYSICAL FLOW COSTING,Costing of the inventory is complicated because the units on hand for a specific ite
34、m of inventory may have been purchased at different prices.,USING ACTUAL PHYSICAL FLOW COSTING,The specific identification method tracks the actual physical flow of the goods.Each item of inventory is marked,tagged,or coded with its specific unit cost.Items still in inventory at the end of the year
35、are specifically costed to arrive at the total cost of the ending inventory.,USING ASSUMED COST FLOW METHODS,Other cost flow methods are allowed since specific identification is often impractical.These methods assume flows of costs that may be unrelated to the physical flow of goods.,USING ASSUMED C
36、OST FLOW METHODS,For this reason we call them assumed cost flow methods or cost flow assumptions.They are:First-in,first-out(FIFO 先进先出).Last-in,first-out(LIFO 后进先出).Average cost(AVC,平均成本法).,FIFO 先进先出,The FIFO method assumes that the earliest goods purchased are the first to be sold.FIFO often reflec
37、ts the actual physical flow of merchandise since it is normally sound business practice to sell the oldest units first.Therefore,under FIFO,the costs of the earliest goods purchased are the first to be recognized as cost of goods sold.,FIFO METHOD,$12,000,$5,800$6,200,Selling 550 units,100$10$1,000
38、200 11 2,200 250 12 3,000 550$6,200,PROOF OF COST OF GOODS SOLD,The accuracy of the cost of goods sold can be verified by recognizing that the first units acquired are the first units sold.,LIFO 后进先出,The LIFO method assumes that the latest goods purchased are the first to be sold.LIFO seldom coincid
39、es with the actual physical flow of inventory.Under LIFO,the costs of the latest goods purchased are the first to be recognized as cost of goods sold.,LIFO METHOD,$12,000,$5,000$7,000,PROOF OF COST OF GOODS SOLD,The cost of the last goods in is the first to be assigned to cost of goods sold.Under a
40、periodic inventory system,all goods purchased during the period are assumed to be available for the first sale,regardless of the date of purchase.,400$13$5,200 150 12 1,800 550$7,000,AVERAGE COST 平均成本,The average cost method assumes that the goods available for sale are homogeneous.The allocation of
41、 the cost of goods available for sale is made on the basis of the weighted average unit cost incurred.The weighted average unit cost is then applied to the units on hand to determine the cost of the ending inventory.,AVERAGE COST METHOD,$12,000,$5,400$6,600,USE OF COST FLOW METHODS IN MAJOR U.S.COMP
42、ANIES,The reasons why companies adopt different inventory cost flow methods,income statement effectsbalance sheet effectstax effects,INCOME STATEMENT EFFECTS COMPARED,Kralik Company buys 200 XR492s at$20 per unit on January 10 and 200 more on December 31 at$24 each.During the year,200 units are sold
43、 at$30 each.,Difference=2000 1200=$800,USING INVENTORY COST FLOW METHODS CONSISTENTLY,A company needs to use its chosen cost flow method consistently一致地 from one accounting period to another.Such consistent application enhances the comparability可比性 of financial statements over successive time period
44、s.When a company adopts a different cost flow method,the change and its effects on net income should be disclosed in the financial statements.,When the value of inventory is lower than the cost,the inventory is written down to its market value.This is known as the lower of cost or market(LCM)method.
45、Under the LCM basis,market is defined as current replacement cost目前重置成本,not selling price.,LOWER OF COST OR MARKET 市价与成本孰低,LOWER OF COST OR MARKET,$159,000$164,000$166,000,Both beginning and ending inventories appear on the income statement.The ending inventory of one period automatically becomes th
46、e beginning inventory of the next period.Inventory errors affect the determination of cost of goods sold and net income.,INVENTORY ERRORS-INCOME STATEMENT EFFECTS,FORMULA FOR COST OF GOODS SOLD,+,=,_,The effects on cost of goods sold can be determined by entering the incorrect data in the above form
47、ula and then substituting the correct data.,EFFECTS OF INVENTORY ERRORS ON CURRENT YEARS INCOME STATEMENT,Understate beginning inventory Understated OverstatedOverstate beginning inventory Overstated UnderstatedUnderstate ending inventory Overstated UnderstatedOverstate ending inventory Understated
48、Overstated An error in ending inventory of the current period will have a reverse effect on net income of the next accounting period.,Assets=Liabilities+Owners Equity,The effect of ending inventory errors on the balance sheet can be determined by using the basic accounting equation:,ENDING INVENTORY
49、 ERROR-BALANCE SHEET EFFECTS,Ending Inventory,Error,Assets,Liabilities,Stockholders Equity,Errors in the ending inventory have the following effects on these components:,Understated Understated None Understated,Overstated Overstated None Overstated,INVENTORY DISCLOSURES,Inventory is classified as a
50、current asset after receivables in the balance sheet.Cost of goods sold is subtracted from sales in a multiple-step income statement.,INVENTORY DISCLOSURES,There should be disclosure either in the balance sheet or in accompanying notes of:major inventory classificationsbasis of accounting(cost or lo
