1. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.1

2. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.2

3. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.3 Important Announcements Exam next ween in first discussion groups on Tu/W Be on time! (early) Provide pencils, calculators (no cell phones) Voluntary review (tentative) Sunday at 3 p.m. (announced officially later this week) Will go over exam on Thur/Fri; need to be present to learn score

4. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.4 Inventory Systems periodic perpetual

5. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.5 Perpetual Inventory Continuously discloses inventory on hand increases in inventory debited to Merchandise Inventory (and posted to subsidiary ledger) two entries to record sales transactions REVENUE: Accounts Receivable -- Customerretail Sales retail REDUCTION IN INVENTORY: Cost of Goods Soldcost Merchandise Inventorycost physical inventory still needed annually to compare with and update inventory records

6. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.6 Periodic Inventory increases recorded in Purchases at time of sale, record revenue but no entry for reduction in inventory physical inventory (actual count) necessity at end of period to determine cost of goods sold

7. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.7 Physical Inventory Procedures necessity for both periodic and perpetual goal: count every item; do not count any item twice

8. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.8 Physical Inventory Procedures necessity for both periodic and perpetual goal: count every item; do not count any item twice have plan and follow it –establish proper “cut-off” of transactions –business often closes in order to count

9. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.9

10. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.10

11. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.11

12. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.12

13. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.13

14. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.14 Physical Inventory Procedures necessity for both periodic and perpetual goal: count every item; do not count any item twice have plan and follow it –establish proper “cut-off” of transactions –business often closes in order to count –best to count in “teams” of two

15. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.15 Physical Inventory Procedures necessity for both periodic and perpetual goal: count every item; do not count any item twice have plan and follow it –establish proper “cut-off” of transactions –business often closes in order to count –best to count in “teams” of two

16. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.16 Physical Inventory Procedures necessity for both periodic and perpetual goal: count every item; do not count any item twice have plan and follow it –establish proper “cut-off” of transactions –business often closes in order to count –best to count in “teams” of two shipping terms determine when title passes

17. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.17 Physical Inventory Procedures necessity for both periodic and perpetual goal: count every item; do not count any item twice have plan and follow it –establish proper “cut-off” of transactions –business often closes in order to count –best to count in “teams” of two shipping terms determine when title passes –FOB SP

18. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.18 Physical Inventory Procedures necessity for both periodic and perpetual goal: count every item; do not count any item twice have plan and follow it –establish proper “cut-off” of transactions –business often closes in order to count –best to count in “teams” of two shipping terms determine when title passes –FOB SP -- title passes when goods are shipped Mack’s Trucking

19. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.19 Physical Inventory Procedures necessity for both periodic and perpetual goal: count every item; do not count any item twice have plan and follow it –establish proper “cut-off” of transactions –business often closes in order to count –best to count in “teams” of two shipping terms determine when title passes –FOB SP -- title passes when goods are shipped –FOB D

20. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.20 Physical Inventory Procedures necessity for both periodic and perpetual goal: count every item; do not count any item twice have plan and follow it –establish proper “cut-off” of transactions –business often closes in order to count –best to count in “teams” of two shipping terms determine when title passes –FOB SP -- title passes when goods are shipped –FOB D -- title passes when goods arrive BUYERBUYER D Mack’s Trucking

21. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.21 Importance of Inventory most active element of a merchandising business principal source of revenue largest current asset largest deduction from revenue

22. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.22 P EI BI Importance of Inventory COGS GAFS To Balance Sheet To Income Statement

23. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.23 Importance of Inventory Inventory Net IncomeAssetsCapital Effects of Misstatement

24. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.24 Arbitrary Assumptions Concerning Cost Flow in order expenditures were made

25. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.25 Arbitrary Assumptions Concerning Cost Flow in order expenditures were made -- FIFO

26. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.26 Arbitrary Assumptions Concerning Cost Flow in order expenditures were made -- FIFO in reverse order in which expenditures were made

27. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.27 Arbitrary Assumptions Concerning Cost Flow in order expenditures were made -- FIFO in reverse order in which expenditures were made - - LIFO

28. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.28 Arbitrary Assumptions Concerning Cost Flow in order expenditures were made -- FIFO in reverse order in which expenditures were made - - LIFO average of expenditures

29. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.29 Balance SheetIncome Statement MICOGS First In … First OUT Latest Items Left Over Time Time Time Time Time Time Time Time Time

30. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.30 Balance SheetIncome Statement MICOGS Last In First OUT Oldest Items Left Time Time Time Time Time Time Time Time Time

31. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.31 Balance SheetIncome Statement MICOGS FIFO LIFO Rising Prices NI Time Time Time Time Time Time Time Time Time

32. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.32 Inventory Exercises

33. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.33 Inventory

34. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.34 Inventory

35. © Copyright 1999, 2005 by M. Ray Gregg. All Rights Reserved.35