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

CENTURY 21 ACCOUNTING © Thomson/South-Western THE NATURE OF MERCHANDISE INVENTORY Merchandise inventory is often the largest asset for merchandising businesses Successful businesses must maintain an adequate amount of merchandise inventory that customers are willing to buy Business managers frequently analyze sales and inventory transactions to assist them in planning future inventory purchases 2 LESSON 6-1

CENTURY 21 ACCOUNTING © Thomson/South-Western 3 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  Merchandise is continually being purchased & sold.  A business’s actual merchandise inventory changes from day to day  The flow of inventory costs through the records of a business is shown above

CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 6-1 EFFECTS OF ERRORS IN COSTING AN INVENTORY page 171  The cost of both beginning & ending merchandise inventory affects items on an income statement, a statement of stockholders’ equity, & a balance sheet.

CENTURY 21 ACCOUNTING © Thomson/South-Western COSTING & COUNTING THE INVENTORY 5 LESSON 6-1  Items in the merchandise inventory of a merchandising business are frequently referred to as goods.  Businesses use two methods to determine the number of goods in inventory:  Taking a physical count of the individual items in inventory. All goods in inventory as of a given date are included in a physical inventory count  Keeping a continuous record for each merchandise item showing the number purchased & the number sold. Using this method, a business can determine the number of goods in inventory at any point in time.

CENTURY 21 ACCOUNTING © Thomson/South-Western STOCK RECORD FOR A PERPETUAL INVENTORY SYSTEM 6 LESSON 6-1  A continuous record of merchandise inventory increases, decreases, & balance on hand is known as a perpetual inventory  A perpetual inventory provides day-to-day records about the quantity of merchandise on hand  A form used to show the type of merchandise, quantity received, quantity sold, & balance on hand is called a stock record  A file of stock records for all merchandise on hand is called a stock ledger

CENTURY 21 ACCOUNTING © Thomson/South-Western 7 LESSON Enter all purchase transactions. 3.Record all sales transactions. STOCK RECORD FOR A PERPETUAL INVENTORY SYSTEM page Record the description information. 2.Write the beginning quantity. 3 2

CENTURY 21 ACCOUNTING © Thomson/South-Western INVENTORY RECORD USED FOR THE PERIODIC INVENTORY 8 LESSON 6-1  A merchandise inventory determined by counting, weighing, or measuring items of merchandise on hand is known as a periodic inventory  For businesses with a large quantity of merchandise on hand, taking an inventory count is expensive  Businesses usually take a periodic inventory only once each fiscal year  A form used during a periodic inventory to record information about each item of merchandise on hand is called an inventory record

CENTURY 21 ACCOUNTING © Thomson/South-Western 9 LESSON 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

CENTURY 21 ACCOUNTING © Thomson/South-Western 10 LESSON 6-1 TERMS REVIEW consignment consignee consignor stock record stock ledger purchase order inventory record page 175