Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.1
Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.2 Inventory Systems periodic perpetual
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
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
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
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
Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.7
Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.8
Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.9
Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.10
Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.11
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
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
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
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
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
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
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
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
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
Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.21 Importance of Inventory Inventory Net IncomeAssetsCapital Effects of Misstatement
Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.22 Arbitrary Assumptions Concerning Cost Flow in order expenditures were made
Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.23 Arbitrary Assumptions Concerning Cost Flow in order expenditures were made -- FIFO
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
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
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
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
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
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
Copyright © 1999, 2002 by M. Ray Gregg. All Rights Reserved.30 Inventory