Presentation on theme: "Inventories and Cost of Goods Calculations"— Presentation transcript:
1 Inventories and Cost of Goods Calculations Chapter 9Inventories and Cost ofGoods Calculations
2 Periodic Inventory System Perpetual Inventory System 9-1 Comparison of Journal Entries under Perpetual and Periodic Inventory Systems23,00022,770230CashSales DiscountsAccounts ReceivableCash received on account with a discount.July 25No entry500Merchandise InventoryCost of Goods Sold1,000Sales Returns and AllowancesReturn on merchandise.July 1812,00024,000Sales RevenueSale of merchandise on credit.July 1637,24076038,000Accounts PayablePurchase DiscountsPayment on account with a discount.July 14200Freight-inFreight costs on purchases.July 82,000Purchase Returns andAllowancesPurchase returns and allowances.July 640,000PurchasesPurchase of merchandise on credit.July 5Periodic Inventory SystemPerpetual Inventory SystemTransaction
3 9-2 Cost of Goods Sold CALCULATION OF COST OF GOODS PURCHASED Purchases$36,000Less: Purchase returns and allowancesPurchase discounts$7,0003,00010,000Net purchases350,000Add: Freight-in5,000Cost of goods purchased$355,000CALCULATION OF COST OF GOODS SOLDInventory, January 1$40,000355,000Cost of goods available for sale395,000Inventory, December 3150,000Cost of goods sold$345,000
4 9-3 Components of the Income Statement using the Periodic Inventory System Sales-Sales returns and allowancesSales discounts=Net SalesNet Sales-Cost of goods sold=Gross profitGross ProfitNet SalesPurchases-Purchase returns and allowancesPurchase discounts=Net purchases+Freight-inCost of goods purchasedSelling expenses (including freight-out)+Administrative expenses=Total operating expensesOperating ExpensesGross profit-Total operating expenses=Net incomeNet IncomeBeginning Inventory+Cost of goods purchase=Cost of goods available for sale-Ending inventoryCost of goods soldCost of Goods Sold
5 9-4 Costing Ending Inventory using FIFO, LIFO and Average Cost Methods – Periodic System Your company provided the following data for the year:UnitsUnit CostTotal CostJanuary 1 …80$15.00$1,200March 15 purchase …6016.00960June 20 purchase …10017.501750October 25 purchase …9018.001,620Units and goods available …330$5,530Ending inventory (December 31) consists of 110 units.Complete the costing of ending inventory under FIFO, LIFO, and average cost.
6 9-4 Costing Ending Inventory using FIFO, LIFO and Average Cost Methods – Periodic System (continued) Cost of goods available for sale ….$5,530LESS:Ending Inventory (FIFO)Dates: Units X CostOctober 25 (90 X $18,000) = $1,620June 20 (20 X $17.50) = 3501,970Ending Inventory (LIFO)Jan 1 (80 X $15.00) = $1,200Mar 15 (30 X $16.00) = 4801,680Ending Inventory (Aver. Cost)Wt. Aver. Cost + Units = Unit Cost$5, = $16.76 (r)$16.76/unit X 110 units1,844 (r)Cost of Goods Sold ….$3,560$3,850$3,686Balance Sheet Effects
7 9-5 Effects of Inventory Errors Cost of Goods SoldNet IncomeBeginning inventory understatedUnderstatedOverstatedBeginning inventory overstatedEnding inventory understatedEnding inventory overstatedSELF-CORRECTING ERRORS OVER TWO PERIODSCurrent PeriodNext PeriodEnding Inventory ErrorBeginning Inventory ErrorAn error’s effect on income this periodReverse effect on net income in this periodCORRECT TOTAL INCOME OVER TWO PERIODSbecomesoffsets