Presentation on theme: "6.01 What is Merchandise Inventory?"— Presentation transcript:
16.01 What is Merchandise Inventory? Understand Inventory Control MethodsPowerPoint #1
2InventoryMerchandise or Stock offered for sale by retail, wholesale, and distribution businessesMerchandise 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.
3Managing and Controlling Inventory To be successful, businesses must control the size and variety of the inventories.Businesses need to know:The amount of merchandise on handThe cost of that merchandiseWhich items are selling and which are notA business should be able to maintain inventory sufficient to satisfy customers’ needs.
4Managing and Controlling Inventory (cont’d) Having too much inventory can cause:Cash flow problems if it is not sold quicklyStorage problemsMerchandise to become obsolete before it gets soldHaving too little inventory can cause:Customers to go elsewhere to have enough variety and choice
5Classification of Inventory 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.
6Goods In TransitGoods 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 PointFree on Board (FOB) Destination
7Free on Board (FOB) Shipping Point 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.
8Free on Board (FOB) Destination 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.
9Goods On ConsignmentGoods that have been given to a business to sell, but that do not belong to the businessThese 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.
10Questions for Understanding/Discussion 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?