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Chapter 51 Inventory. Chapter 52 Comparison of Perpetual and Periodic Inventory Systems.

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Presentation on theme: "Chapter 51 Inventory. Chapter 52 Comparison of Perpetual and Periodic Inventory Systems."— Presentation transcript:

1 Chapter 51 Inventory

2 Chapter 52 Comparison of Perpetual and Periodic Inventory Systems

3 Chapter 53 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

4 Chapter 54 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.

5 Chapter 55 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.

6 Chapter 56 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.

7 Chapter 57 Paying for Freight-In on Purchases On August 3, Marcia receives and pays the $22 freight bill on the dresses purchased on August 1.

8 Chapter 58 Returning Inventory to a Supplier On August 5, Marcias Boutique returned a dress to Kwon because the dress had a fabric flaw.

9 Chapter 59 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.

10 Chapter 510 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.

11 Chapter 511 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.

12 Chapter 512 Inventory Cost Flow Methods Specific Identification First In First Out Last In First Out Weighted Average

13 Chapter 513 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 $30 each $ 3,000 1/ 8 Purchased 400 $35 each 14,000 1/14 Sold 360 copies 1/18 Purchased 70 $39 each 2,730 1/22 Sold 180 copies

14 Chapter 5 14 Item: Principles of Marketing, Perpetual Inventory Record, FIFO Method PurchasesSoldBalance Date # Unit Cost Total # Unit Cost Total # Unit Cost Balance Jan $30$3,000 Jan. 8400$35 14, $30 35 $ 3,000 14,000 $17,000 Jan $30 35 $3,000 $9, $35 $4,900 Jan $39 $2, $35 39 $4,900 2,730 $7,630 Jan $35 39 $4,900 $1, $39 $1,170

15 Chapter 5 15 Item: Principles of Marketing, Perpetual Inventory Record, Perpetual LIFO PurchasesSoldBalance Date # Unit Cost Total # Unit Cost Total # Unit Cost Balance Jan $30$3,000 Jan. 8400$35 $14, $30 35 $ 3,000 14,000 $17,000 Jan $35 $12, $30 35 $ 3,000 1,400 $4,400 Jan $39 $2, $ $3,000 1,400 2,730 $7,130 Jan $ $2,730 1,400 2, $30 $ 900

16 Chapter 5 16 Item: Principles of Marketing, Perpetual Inventory Record, Moving Average Method PurchasesSoldBalance Date # Unit Cost Total # Unit Cost Total # Unit Cost Balance Jan $30$ 3,000 Jan. 8400$35 $14, $17,000 Jan $34$12, $34 $ 4,760 Jan $39$2, $ 7,490 Jan $ $6, $35.67 $ 1,069

17 Chapter 517 Cost of Goods Sold, Gross Profit and Inventory Amounts

18 Chapter 518 Cost Flow

19 Chapter 519Chapter 519 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 $56 April 5 32 units June 1926 $60 Aug units Nov $63

20 Chapter 520 DatePurchasesSalesBalance Jan. $50 = $1,250 Feb. $56 = $50 = $1,250 $56 = $1,120 April $56 = $1,120 $50 = $50 = $650 June $60 = $50 = $650 $60 = $1,560 Aug. $60 = $50 = $650 $60 =$660 Nov. $63 = $50 = $650 $60 = $660 $63 = $630 Total ending inventory = $1,940

21 Chapter 521 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.

22 Chapter 522 Retail Inventory Method Illustrated

23 Chapter 523 Lower of Cost or Market ITEM 727 Jeans 757 Jeans Tank tops Pullovers Quantity Unit Cost Replacement Cost Total Cost ,370* Total Market LCM ,070** *Applying LCM on a total inventory basis **Applying LCM on an Item by Item basis

24 Chapter 524

25 Chapter 525 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.


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