1. Chapter 22 Accounting for Inventory

2. Determining the Quantity of Merchandise Inventory Two methods used to determine the quantity of each item of merchandise on hand are: 1. Periodic Inventory 2. Perpetual Inventory

3. Periodic Inventory A merchandise inventory determined by counting, weighting, or measuring items of merchandise on hand. AKA physical inventory Usually taken at the end of a fiscal period A form used during a periodic inventory to record information about each item of merchandise on hand is called an inventory record.

4. Perpetual Inventory A merchandise inventory determined by keeping a continuous record of increases, decreases, and balance on hand. AKA a book inventory Provides a day-to-day information about the quantity of merchandise on hand. A form used to show the kind of merchandise, quantity received, quantity sold, and balance on hand is called stock record.

5. Perpetual Inventory Using a Computer Many businesses use a computer to keep perpetual inventory records. Special cash registers are used to read UPC codes. In complex inventory systems, the computer is programmed to periodically check the quantities in the stock ledger and print a list of the items that need to be reordered.

6. Determining the Cost of Merchandise Inventory Most businesses use one of three inventory costing methods to calculate the cost of merchandise inventory: 1. first-in, first-out 2. last-in, first-out 3. weighted-average

7. First-In, First-Out Inventory Costing Method Using the price of merchandise purchased first to calculate the cost of merchandise sold first. Abbreviated FIFO

8. Last-In, First-Out Inventory Costing Method Using the price of merchandise purchased last to calculate the cost of merchandise sold first. Abbreviated LIFO

9. Weighted-Average Inventory Costing Method Using the average cost of beginning inventory plus merchandise purchased during a fiscal period to calculate the cost of merchandise sold.

10. Estimating the Cost of Merchandise Inventory Estimating inventory by using the previous years’ percentage of gross profit on operations.