Post on 13-Jan-2016
description
Retail Inventory
Chapter 9
HORNGREN ♦ HARRISON ♦ BAMBER ♦ BEST ♦ FRASER ♦ WILLETT
9 - 2Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Objectives
1 Account for inventory by the physical and perpetual systems.
2. Apply the inventory costing methods: specific unit cost, weighted average cost, FIFO and LIFO
3. Identify the profit effects of the inventory costing methods
9 - 3Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Objectives
4. Apply the lower-of-cost-and-net-reliable-value rule to inventory
5. Determine the effects of inventory errors on cost of goods sold and net profits
6. Estimate ending inventory by the gross profit and retail inventory method
9 - 4Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Account for inventory
by the periodic and perpetual systems
Objective 1
9 - 5Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Perpetual systems maintain a running recordto show the inventory on hand at all times.
Perpetual systems maintain a running recordto show the inventory on hand at all times.
Periodic systems do not keep acontinuous record of inventory on hand.
Periodic systems do not keep acontinuous record of inventory on hand.
Inventory Accounting Systems
9 - 6Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Debit Cash or Accounts ReceivableCredit Sales Revenue
Debit Cash or Accounts ReceivableCredit Sales Revenue
Debit Cost of Goods SoldCredit Inventory
Debit Cost of Goods SoldCredit Inventory
Perpetual System
Debit Inventory Credit Cash or Accounts PayableDebit Inventory Credit Cash or Accounts Payable
9 - 7Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Perpetual System(see page 369 text)
Item: SandalsQuantity Quantity Quantity
Date Received Sold on HandNov. 1
5 7
12 26 30
Totals
25
25
50
6
13
2140
10 42916412020
9 - 8Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Periodic SystemCost of Goods Sold
BeginningInventory$100,000
NetPurchases$560,000
Cost of GoodsAvailable forSale $660,000
+ =
EndingInventory$120,000
=Cost of Goods
Sold$540,000
–
9 - 9Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Sales revenues – Cost of goods sold =Gross profit (before operating expenses)
Sales revenues – Cost of goods sold =Gross profit (before operating expenses)
Gross profit – Operating expenses =Net profit
Gross profit – Operating expenses =Net profit
Gross Profit
9 - 10Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Cost-of-Goods-Sold Model
Budgeted Cost of Goods Sold
Budgeted Ending Inventory+
=
Actual Beginning Inventory
= Purchases
–
Budgeted Cost of Goods Available for Sale
9 - 11Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Cost of inventory on hand = Quantity × unit cost Cost of inventory on hand = Quantity × unit cost
Calculating the Cost of Inventory
Physical count is made at least once a year, even with a perpetual system.
Consigned goods are excluded.
9 - 12Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Periodic System
At the end of the period make a physical count and apply unit cost to determine ending inventory.
Inventory purchases are debited to the purchases account.
The inventory account carries the beginning inventory balance until adjusted at period end.
9 - 13Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Accounts Payable
Inventory
120,000Ending
Balance
Purchases
560,000Purchases
100,000BeginningBalance
Cost of Goods Sold100,000560,000540,000
120,000EndingBalance560,000
Purchases
560,000Purchases
100,000Beginning
Balance
Periodic System
9 - 14Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Apply the inventory costingmethods: specific unit cost,
weighted-average cost,FIFO and LIFO
Objective 2
9 - 15Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
January 8 20 units @ $20 = $ 400May 19 55 units @ $30 = $1,650October 23 25 units @ $31 = $ 775Total units 100 Units sold 70Units left 30
January 8 20 units @ $20 = $ 400May 19 55 units @ $30 = $1,650October 23 25 units @ $31 = $ 775Total units 100 Units sold 70Units left 30
Units Purchased in 2004
9 - 16Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Units sold by date:Jan 5 17May 19 33Oct 23 20Total sales 70
Units sold by date:Jan 5 17May 19 33Oct 23 20Total sales 70
30 units left in inventory30 units left in inventory
Units Sold and in Ending Inventory
9 - 17Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Cost of Goods SoldOct 23 $ 620May 19 990Jan 5 340Total $1,950
Specific Identification
20 Units @ $31
5 Units @ $31
33 Units @ $30
22 Units @ $30
17 Units @ $20
3 Units @ $20
9 - 18Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Ending InventoryOct $155May 660Jan 60Total $875
Specific Identification
20 Units @ $31
5 Units @ $31
33 Units @ $30
22 Units @ $30
17 Units @ $20
3 Units @ $20
9 - 19Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Weighted Average
25 Units @ $31 (Oct)
55 Units @ $30 (May)
20 Units @ $20 (Jan)
= $ 775
= 1,650
= 400
= $2,825 Total Cost100 Total Units
9 - 20Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Weighted Average
$2,825 total cost/100 units = $28.25/unit$2,825 total cost/100 units = $28.25/unit
Cost of goods sold = 70 × $28.25 = $1977.50Cost of goods sold = 70 × $28.25 = $1977.50
Ending inventory = 30 × $28.25 = $847.50Ending inventory = 30 × $28.25 = $847.50
9 - 21Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Cost of Goods SoldJan $ 400May 1,500Total $1,900
First-In, First-Out
25 Units @ $31 (Oct)
5 Units @ $30 (May)
50 Units @ $30
20 Units @ $20 (Jan)
9 - 22Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Ending InventoryOct $775May 150Total $925
First-In, First-Out
25 Units @ $31 (Oct)
5 Units @ $30 (May)
50 Units @ $30
20 Units @ $20 (Jan)
9 - 23Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Cost of Goods SoldOct $ 775May 1,350Total $2,125
Last-In, First-Out
25 Units @ $31 (Oct)
45 Units @ $30 (May)
10 Units @ $30
20 Units @ $20 (Jan)
9 - 24Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Ending InventoryOct $300May 400Total $700
Last-In, First-Out
25 Units @ $31 (Oct)
45 Units @ $30 (May)
10 Units @ $30
20 Units @ $20 (Jan)
9 - 25Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Ending Inventory Specific identification $875.00 FIFO $925.00 LIFO $700.00 Weighted-average $847.50
Comparison of Methods
9 - 26Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Cost of Goods Sold Specific identification $1,965.00 FIFO $1,900.00 LIFO $2,125.00 Weighted-average $1,977.50
Comparison of Methods
9 - 27Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
When prices are rising LIFO producesthe lowest income and lowest income tax.
Comparison of Methods
Gross Profit from Sales:
Specific identification $1,035.00
FIFO $1,100.00
LIFO $ 875.00
Weighted-average $1,022.50
9 - 28Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Identify the profit effectsof the
inventory costing methods
Objective 3
9 - 29Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
The Income TaxAdvantage of LIFO
During periods of inflation, LIFO’s income is the lowest.
The most attractive feature of LIFO is reduced income tax payments.
That is probably why it cannot be used not tax (and financial reporting purposes) in Australia!
9 - 30Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Perpetual System FIFO Example
Many companies keep their perpetual inventory records in quantities only.
Other companies keep perpetual records in both quantities and dollar cost.
9 - 31Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Perpetual System FIFO Example
(see page 379 text
Item: Wambat Sandals Received Sold Balance on Hand
Unit Unit UnitDate Qty. Cost Total Qty. Cost Total Qty. Cost TotalNov. 1 10 $30 $300 5 6 $30 $180 4 30 120 7 25 $31 $775 4 30 120
25 31 775 12 4 30 120
9 31 279 16 31 496
Deckers Outdoor
9 - 32Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Perpetual System FIFO Example
Item: Teva Sandals Received Sold Balance on Hand
Unit Unit UnitDate Qty. Cost Total Qty. Cost Total Qty. Cost TotalNov. 26 25 $32 $ 800 16 $31 $496
25 32 800 30 16 $31 496 25 32 800
5 32 160 20 32 640Totals 50 $1,575 40 $1,235 20 $32 $640
Deckers Outdoor
9 - 33Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
The business should use the same accountingmethods and procedures from one period to the next.
The business should use the same accountingmethods and procedures from one period to the next.
A company may change inventory methods, but itmust disclose the effects of the change on net profits.
A company may change inventory methods, but itmust disclose the effects of the change on net profits.
Accounting Principles: Comparability
9 - 34Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
The financial statementsshould report sufficientinformation to enablean outsider to make
knowledgeable decisionsabout the company.
Accounting Principles: Relevance
9 - 35Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Accounting Principles: Materiality
An item is material if it has the potentialto alter a statement user’s decision.
An item is material if it has the potentialto alter a statement user’s decision.
Materiality is specific tothe entity being evaluated.
Materiality is specific tothe entity being evaluated.
9 - 36Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Err on the sideof caution when
reporting any item inthe financial statements.
Accounting Principles: Conservatism
9 - 37Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Apply the lower-of-cost-and-net-realisable-value
rule to inventory
Objective 4
9 - 38Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Lower-of-Cost-and-N-R-V
An asset is reported at the lower of its historical cost or market (replacement) value.
If the replacement cost falls below its historical cost, the business must write down the value of its inventory.
9 - 39Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
June 30
Loss on Inventory (or COGS) 800Inventory 800
Write down inventory to LCNRV
June 30
Loss on Inventory (or COGS) 800Inventory 800
Write down inventory to LCNRV
Lower-of-Cost-and-N-R-V Example
Cost of inventory: $3,000 Market value at balance sheet date:
$2,200 What is the journal entry?
9 - 40Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Determine the effects ofinventory errors on cost
ofgoods sold and net profit
Objective 5
9 - 41Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Inventory Errors
If inventory is calculated incorrectly, how many years of financial statements will it affect?
Two years The current year’s ending inventory is
next year’s beginning inventory.
9 - 42Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Estimate ending inventoryby the gross profit and retail inventory method
Objective 6
9 - 43Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Net Sales $150,000Gross Profit Margin 31.5%Beginning Inventory $ 18,500Net Purchases $110,500
Net Sales $150,000Gross Profit Margin 31.5%Beginning Inventory $ 18,500Net Purchases $110,500
Gross Profit Method Example
Net Sales $150,000– Gross Profit of 31.5% 47,250= Cost of Goods Sold $102,750
Net Sales $150,000– Gross Profit of 31.5% 47,250= Cost of Goods Sold $102,750
9 - 44Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Gross Profit Method Example
BeginningInventory$18,500
NetPurchases$110,500
Cost of GoodsAvailable forSale $129,000
+ =
EndingInventory$26,250
=Cost of Goods
Sold$102,750
–
9 - 45Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Retail Inventory Method
Businesses with high turnover, low cost inventory, AASB 1019 allows the use of the retail inventory method.
Like the gross profit method it is based on the COGS model.
Requires the recording of inventory purchases at cost and at retail (selling) price.
See exhibit 9-13 page 385 of you text book.
9 - 46Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Internal Control over Inventory
Physically counting inventory (stocktake) Safe storage Separate inventory and accounting records Keeping perpetual inventory records Sufficient inventory to prevent stock-outs Not too much inventory – avoid obsolesce Economic order quantities Investigate just-in-time inventory systems.
9 - 47Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
End of Chapter 9