1. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1 The Nature of Merchandise Inventory

2. CENTURY 21 ACCOUNTING © Thomson/South-Western 2 LESSON 6-1 Cost of Merchandise Available for Sale Beginning Merchandise Inventory Net Purchases Ending Merchandise Inventory Cost of Merchandise Sold FLOW OF INVENTORY COSTS page 171

3. CENTURY 21 ACCOUNTING © Thomson/South-Western 3 LESSON 6-1 EFFECTS OF ERRORS IN COSTING AN INVENTORY page 171

4. CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 6-1 4 1 4.Enter all purchase transactions. 3.Record all sales transactions. STOCK RECORD FOR A PERPETUAL INVENTORY SYSTEM page 173 1.Record the description information. 2.Write the beginning quantity. 3 2

5. CENTURY 21 ACCOUNTING © Thomson/South-Western 5 LESSON 6-1 1.Enter inventory date and item description. 2.Record stock numbers and descriptions. 3.Write the number of units on hand. 4.Record the unit price. 5.Calculate and record the total item cost. 6.Total the column. INVENTORY RECORD USED FOR THE PERIODIC INVENTORY page 174 345 6 22 11

6. CENTURY 21 ACCOUNTING © Thomson/South-Western 6 LESSON 6-1 TERMS REVIEW consignment consignee consignor stock record stock ledger purchase order inventory record page 175

7. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-2 Inventory Costing

8. CENTURY 21 ACCOUNTING © Thomson/South-Western 8 LESSON 6-1 1.Assign units from most recent purchase. 2.Assign units from next most recent purchase. 3.Multiply ending inventory units by unit price. 4.Total the ending inventory columns. FIRST-IN, FIRST-OUT INVENTORY COSTING METHOD page 176 1 2 3 4

9. CENTURY 21 ACCOUNTING © Thomson/South-Western 9 LESSON 6-1 1.Assign units from earliest purchase. 2.Assign units from next earliest purchase. 3.Multiply ending inventory units by unit price. 4.Total the ending inventory columns. LAST-IN, FIRST-OUT INVENTORY COSTING METHOD page 177 1 2 4 3

10. CENTURY 21 ACCOUNTING © Thomson/South-Western 10 LESSON 6-1 WEIGHTED-AVERAGE INVENTORY COSTING METHOD page 177

11. CENTURY 21 ACCOUNTING © Thomson/South-Western 11 LESSON 6-1 COSTING INVENTORY DURING PERIODS OF INCREASING PRICES page 178

12. CENTURY 21 ACCOUNTING © Thomson/South-Western 12 LESSON 6-1 COSTING INVENTORY DURING PERIODS OF DECREASING PRICES page 179

13. CENTURY 21 ACCOUNTING © Thomson/South-Western 13 LESSON 6-1 RESULTS OF THE THREE INVENTORY COSTING METHODS COMPARED page 179

14. CENTURY 21 ACCOUNTING © Thomson/South-Western 14 LESSON 6-1 1.Calculate the cost. 2.Calculate the market price. 3.Determine the smaller number to use as the lower of cost or market amount. LOWER OF COST OR MARKET INVENTORY COSTING METHOD page 180 123

15. CENTURY 21 ACCOUNTING © Thomson/South-Western 15 LESSON 6-1 TERMS REVIEW first-in, first-out inventory costing method last-in, first-out inventory costing method weighted-average inventory costing method lower of cost or market inventory costing method page 181

16. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-3 Estimating the Inventory

17. CENTURY 21 ACCOUNTING © Thomson/South-Western 17 LESSON 6-1 1.Write beginning inventory amount. 2.Determine net purchases. 7.Determine estimated ending inventory. 6.Calculate estimated cost of merchandise sold. 5.Estimate gross profit. 4.Enter net sales. 3.Calculate merchandise available for sale. GROSS PROFIT METHOD OF ESTIMATING INVENTORY page 182 5 6 7 4 1 2 3

18. CENTURY 21 ACCOUNTING © Thomson/South-Western 18 LESSON 6-1 1.Enter beginning inventory at cost and retail. 2.Add net purchases at cost and retail. 6.Determine estimated ending inventory cost. 5.Calculate estimated ending inventory at retail. 4.Write net sales. 3.Calculate merchandise available for sale at cost and retail. RETAIL METHOD OF ESTIMATING INVENTORY page 183 6 3 1 2 5 4

19. CENTURY 21 ACCOUNTING © Thomson/South-Western 19 LESSON 6-1 Average Merchandise Inventory =2÷ December 31 Merchandise Inventory + January 1 Merchandise Inventory $925,368.00+$170,845.00=5.4 times Cost of Merchandise Sold + Average Merchandise Inventory = Merchandise Inventory Turnover Ratio MERCHANDISE INVENTORY TURNOVER ($168,365.00+$173,325.00)÷2=$170,845.00 page 184

20. CENTURY 21 ACCOUNTING © Thomson/South-Western 20 LESSON 6-1 AVERAGE NUMBER OF DAYS’ SALES IN MERCHANDISE INVENTORY Average Number of Days’ Sales in Merchandise Inventory = Merchandise Inventory Turnover Ratio ÷Days in Year 365÷5.4=68 days page 184

21. CENTURY 21 ACCOUNTING © Thomson/South-Western 21 LESSON 6-1 TERMS REVIEW retail method of estimating inventory merchandise inventory turnover ratio average number of days’ sales in merchandise inventory page 185