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Understand Inventory Control Methods PowerPoint #1.

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Presentation on theme: "Understand Inventory Control Methods PowerPoint #1."— Presentation transcript:

1 Understand Inventory Control Methods PowerPoint #1

2  Merchandise or Stock offered for sale by retail, wholesale, and distribution businesses  Merchandise may also be made by a business for sale to customers.  It is the largest current asset of a business, and needs to be properly managed and controlled.

3  To be successful, businesses must control the size and variety of the inventories.  Businesses need to know: ◦ The amount of merchandise on hand ◦ The cost of that merchandise ◦ Which items are selling and which are not  A business should be able to maintain inventory sufficient to satisfy customers’ needs.

4  Having too much inventory can cause: ◦ Cash flow problems if it is not sold quickly ◦ Storage problems ◦ Merchandise to become obsolete before it gets sold  Having too little inventory can cause: ◦ Customers to go elsewhere to have enough variety and choice

5  Inventory is recorded on the Balance Sheet as a Current Asset.  Inventory also appears on the Income Statement in the Cost of Goods Sold Section.  When recording the purchase of inventory, include all costs necessary to purchase the item and get it to its intended location.

6  Goods in Transit are goods that have been purchased from suppliers, but have not yet been received.  Whether or not to include these amounts in inventory depends on who holds the title to the goods.  There are 2 main methods of shipping goods: ◦ Free on Board (FOB) Shipping Point ◦ Free on Board (FOB) Destination

7  The buyer/business pays the transportation charges.  The title (ownership) for the goods passes to the buyer as soon as they are placed with the transportation company.  The costs of these goods must be included in the Inventory account.

8  The vendor/seller pays the transportation charges.  The title for the goods STAYS with the seller until the goods are delivered to the buyer/business.  The costs of these goods are NOT included in the Inventory account.

9  Goods that have been given to a business to sell, but that do not belong to the business  These goods are NOT included in inventory.  The Consignee is the person or business receiving the goods.  The Consignor is the person or business that provides the goods to sell.  Often, the business holding the goods will indicate consignment goods in a note to the financial statements.

10  What is Inventory?  Explain why Inventory is often the largest asset of a company.  Explain why inventories need to be properly managed and controlled.  What are some problems with having too little inventory?  What are some problems with having too much inventory?  What does In Transit mean?  Which type of FOB requires a company to record the cost of In Transit Goods?  What are Goods on Consignment?


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