Presentation is loading. Please wait.

Presentation is loading. Please wait.

Chapter 41 Cash, Short-term Investments and Accounts Receivable Chapter 4.

Similar presentations


Presentation on theme: "Chapter 41 Cash, Short-term Investments and Accounts Receivable Chapter 4."— Presentation transcript:

1 Chapter 41 Cash, Short-term Investments and Accounts Receivable Chapter 4

2 Chapter 52 Inventory

3 Chapter 53 3 Chapter 5 Learning Objectives Account for common inventory transactions. Use the four major inventory cost flow methods to calculate ending inventory and cost of goods sold. Use the retail inventory method to calculate ending inventory and cost of goods sold. Apply the lower-of-cost-or-market rule to inventory. Determine the effects of inventory errors on financial statements. Use ratios and other analysis techniques to make decisions about inventory.

4 Chapter 54 Comparison of Perpetual and Periodic Inventory Systems

5 Chapter 55 Inventory Accounting Terms Sales Sales Returns and Allowances Sales Discounts Purchase Returns and Allowances Purchase Discounts Freight-In Delivery Expense(Freight-out) Cost of Goods Sold

6 Chapter 56 Shipping Terms Buyerpays FOB Shipping Point: Buyer pays to get the goods to the destination. Seller pays FOB Destination: Seller pays to get the goods to the destination.

7 Chapter 57 Accounting for Common Inventory Transactions Six common transactions are related to accounting for inventory: a.Purchasing inventory from a supplier b.Paying for freight on purchases c.Returning inventory to a supplier d.Selling inventory to a customer e.Accepting returns of inventory from a customer f.Paying on account for purchases of inventory The next few slides will show examples of journal entries for the above transactions.

8 Chapter 58 Purchasing Inventory From a Supplier On August 1, Marcias Boutique purchased 12 dresses at $50 each from a supplier, Kwon, Inc. The credit terms are 2/10, n/30 and the shipping terms are FOB shipping point.

9 Chapter 59 Paying for Freight-In on Purchases On August 3, Marcia receives and pays the $22 freight bill on the dresses purchased on August 1.

10 Chapter 510 Returning Inventory to a Supplier On August 5, Marcias Boutique returned a dress to Kwon because the dress had a fabric flaw.

11 Chapter 511 Selling Inventory to a Customer Marcias Boutique sells three dresses for cash ($110 per dress) on August 7. Because the company uses a perpetual inventory system, two journal entries are required.

12 Chapter 512 Accepting Returns of Inventory from a Customer On August 8, one customer who bought a dress on August 7 decided to return it. Marcias Boutique will prepare two journal entries to record the return.

13 Chapter 513 Paying on Account for Purchases of Inventory On August 11, Marcias paid for the dresses purchased from Kwon. The credit terms allow Marcias Boutique to deduct 2% from the total amount owed if payment is made by August 11.

14 Chapter 514 Summary of Perpetual Inventory Transactions

15 Chapter 515Chapter 515 The entry to purchase merchandise under a perpetual inventory system includes a debit to: a. purchases. b. accounts payable. c. inventory. d. accounts receivable.

16 Chapter 516Chapter 516 The entry to purchase merchandise under a perpetual inventory system includes a debit to: a. purchases. b. accounts payable. c. inventory. d. accounts receivable.

17 Chapter 517Chapter 517 The entry under a perpetual inventory system for the seller to record the cost of merchandise returned includes a credit to: a. purchases. b. accounts payable. c. inventory. d. cost of goods sold.

18 Chapter 518Chapter 518 The entry under a perpetual inventory system for the seller to record the cost of merchandise returned includes a credit to: a. purchases. b. accounts payable. c. inventory. d. cost of goods sold.

19 Chapter 519Chapter 519 The entry under a perpetual inventory system to record the cost of merchandise sold includes a debit to: a. accounts receivable. b. inventory. c. cost of goods sold. d. sales.

20 Chapter 520Chapter 520 The entry under a perpetual inventory system to record the cost of merchandise sold includes a debit to: a. accounts receivable. b. inventory. c. cost of goods sold. d. sales.

21 Chapter 521 Inventory Cost Flow Methods Specific Identification First In First Out Last In First Out Weighted Average

22 Chapter 522 Cost Flow Example The operations of University Bookstore are used to explore the topic of inventory costing. Following are inventory data for January for a Principles of Marketing textbook. The text is a paperback version and, thus, there are no used copies of the text available for sale. To simplify the example, it is assumed that University Bookstore is only open two days in January; all sales, therefore, occur on those two days. 1/ 1 Beginning inventory 100 copies @ $30 each $ 3,000 1/ 8 Purchased 400 copies @ $35 each 14,000 1/14 Sold 360 copies 1/18 Purchased 70 copies @ $39 each 2,730 1/22 Sold 180 copies

23 Chapter 5 23 Item: Principles of Marketing, Perpetual Inventory Record, FIFO Method PurchasesSoldBalance Date # Unit Cost Total # Unit Cost Total # Unit Cost Balance Jan. 1 100$30$3,000 Jan. 8400$35 14,000 100 400 500 $30 35 $ 3,000 14,000 $17,000 Jan. 17 100 260 $30 35 $3,000 $9,100 140 $35 $4,900 Jan. 18 70 $39 $2,730 140 70 210 $35 39 $4,900 2,730 $7,630 Jan. 22 140 40 $35 39 $4,900 $1,560 30 $39 $1,170

24 Chapter 5 24 Item: Principles of Marketing, Perpetual Inventory Record, Perpetual LIFO PurchasesSoldBalance Date # Unit Cost Total # Unit Cost Total # Unit Cost Balance Jan. 1 100$30$3,000 Jan. 8400$35 $14,000 100 400 500 $30 35 $ 3,000 14,000 $17,000 Jan. 17 360$35 $12,600 100 40 $30 35 $ 3,000 1,400 $4,400 Jan. 18 70$39 $2,730 100 40 70 210 $30 35 39 $3,000 1,400 2,730 $7,130 Jan. 22 70 40 70 $39 35 30 $2,730 1,400 2,100 30 $30 $ 900

25 Chapter 5 25 Item: Principles of Marketing, Perpetual Inventory Record, Moving Average Method PurchasesSoldBalance Date # Unit Cost Total # Unit Cost Total # Unit Cost Balance Jan. 1 100$30$ 3,000 Jan. 8400$35 $14,00 0 500 $17,000 Jan. 17 360$34$12,240 140 $34 $ 4,760 Jan. 18 70 $39$2,730 210 $ 7,490 Jan. 22 180 $35.6 7 $6,421 30 $35.67 $ 1,069

26 Chapter 526 Cost of Goods Sold, Gross Profit and Inventory Amounts

27 Chapter 527 Cost Flow

28 Chapter 528Chapter 528 Compute the ending inventory for Rayborn Company using the LIFO perpetual method based on the following information. On January 1 Rayborn Company had 25 units at a cost of $50 each. DatePurchasesSales Feb. 1020 units @ $56 April 5 32 units June 1926 units @ $60 Aug. 29 15 units Nov. 1010 units @ $63

29 Chapter 529 DatePurchasesSalesBalance Jan. 125 @ $50 = $1,250 Feb. 1020 @ $56 = $1,12025 @ $50 = $1,250 20 @ $56 = $1,120 April 520 @ $56 = $1,120 12 @ $50 = $60013 @ $50 = $650 June 1926 @ $60 = $1,56013 @ $50 = $650 26 @ $60 = $1,560 Aug. 2915 @ $60 = $90013 @ $50 = $650 11 @ $60 =$660 Nov. 1010 @ $63 = $63013 @ $50 = $650 11 @ $60 = $660 10 @ $63 = $630 Total ending inventory = $1,940

30 Chapter 530 Retail Inventory Method Often used in small businesses to estimate the amount of inventory on hand. Should be a consistent relationship between the costs and selling prices of a companys products. Can be used with FIFO, LIFO, or average cost flow assumptions.

31 Chapter 531 Retail Inventory Method Illustrated

32 Chapter 532Chapter 532 Compute estimated ending inventory using the retail inventory method for the King Company on December 31, 2011. CostRetail Jan. 1 inventory$50,000$ 90,000 Purchases during 2011 70,000 150,000 Sales during 2011 200,000

33 Chapter 533Chapter 533 Compute estimated ending inventory using the retail inventory method for the King Company on Dec. 31, 2011. CostRetail Jan. 1 inventory$ 50,000$ 90,000 Purchases during 2011 70,000 150,000 Goods available for sale 120,000 240,000 Sales during 2011(200,000) Ending inventory at retail$ 40,000 Cost to retail % (120,000/240,000 = 50% Ending inventory at cost ($40,000 X 50%)$ 20,000

34 Chapter 534 Lower of Cost or Market ITEM 727 Jeans 757 Jeans Tank tops Pullovers Quantity 30 20 50 40 Unit Cost 14 24 15 18 Replacement Cost 18 17 20 14 Total Cost 420 480 750 720 2,370* Total Market 540 340 1000 560 2440 LCM 420 340 750 560 2,070** *Applying LCM on a total inventory basis **Applying LCM on an Item by Item basis

35 Chapter 535Chapter 535 John Company has 200 units of inventory on hand at December 31. Johns cost under FIFO is $52 per unit. The Dec. 31 current cost is $55 per unit. Using lower-of-cost- or-market, John should show an ending inventory balance of a. $10,400. b. $11,000. c. $10,700. d. $10,500.

36 Chapter 536Chapter 536 John Company has 200 units of inventory on hand at December 31. Johns cost under FIFO is $52 per unit. The Dec. 31 current cost is $55 per unit. Using lower-of-cost- or-market, John should show an ending inventory balance of a. $10,400. b. $11,000. c. $10,700. d. $10,500.

37 Chapter 537

38 Chapter 538Chapter 538 John Company overstated 2010 ending inventory by $25,000. What effect will this error have on 2010 and 2011 net income, respectively? a. overstate and understate b. overstate and overstate c. understate and understate d. understate and overstate

39 Chapter 539Chapter 539 John Company overstated 2010 ending inventory by $25,000. What effect will this error have on 2010 and 2011 net income, respectively? a. overstate and understate b. overstate and overstate c. understate and understate d. understate and overstate

40 Chapter 540 Relevant Ratios Inventory Turnover Ratio = Cost of Goods Sold ÷ Average Inventory Age of Inventory = 360 days ÷ Inventory Turnover Ratio The inventory turnover ratio indicates the number of times that a company sells or "turns over" its inventory each year. Inventory age indicates the average period required to sell an item of inventory.

41 Chapter 541Chapter 541 THE END!


Download ppt "Chapter 41 Cash, Short-term Investments and Accounts Receivable Chapter 4."

Similar presentations


Ads by Google