1. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.1

2. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.2 Inventory Systems periodic perpetual

3. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.3 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

4. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.4 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

5. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.5 Physical Inventory Procedures necessity for both periodic and perpetual goal: count every item; do not count any item twice

6. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.6 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

7. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.7

8. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.8

9. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.9

10. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.10

11. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.11

12. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.12 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

13. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.13 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

14. Copyright © 1999, 2002 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 shipping terms determine when title passes

15. Copyright © 1999, 2002 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 shipping terms determine when title passes –FOB SP

16. Copyright © 1999, 2002 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 –FOB SP -- title passes when goods are shipped Mack’s Trucking

17. Copyright © 1999, 2002 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 -- title passes when goods are shipped –FOB D

18. Copyright © 1999, 2002 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 –FOB D -- title passes when goods arrive BUYERBUYER D Mack’s Trucking

19. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.19 Importance of Inventory most active element of a merchandising business principal source of revenue largest current asset largest deduction from revenue

20. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.20 P EI BI Importance of Inventory COGS GAFS To Balance Sheet To Income Statement

21. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.21 Importance of Inventory Inventory Net IncomeAssetsCapital Effects of Misstatement

22. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.22 Arbitrary Assumptions Concerning Cost Flow in order expenditures were made

23. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.23 Arbitrary Assumptions Concerning Cost Flow in order expenditures were made -- FIFO

24. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.24 Arbitrary Assumptions Concerning Cost Flow in order expenditures were made -- FIFO in reverse order in which expenditures were made

25. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.25 Arbitrary Assumptions Concerning Cost Flow in order expenditures were made -- FIFO in reverse order in which expenditures were made - - LIFO

26. Copyright © 1999, 2002 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 - - LIFO average of expenditures

27. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.27 Balance SheetIncome Statement MICOGS First In … First OUT Latest Items Left Over Time Time Time Time Time Time Time Time Time

28. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.28 Balance SheetIncome Statement MICOGS Last In First OUT Oldest Items Left Time Time Time Time Time Time Time Time Time

29. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.29 Balance SheetIncome Statement MICOGS FIFO LIFO Rising Prices NI Time Time Time Time Time Time Time Time Time

30. Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.30 Inventory