Student Version o Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information. o These PowerPoint slides have been modified from the lecture decks by making them fill-in-the-blank. Why? So that you get an opportunity to repeat a visual cue (from the lecture or the book) via completing text here. o In addition, most text book exhibits have been removed as they are available in your text directly.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Inventories Chapter 7

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe the importance of control over inventory. 1

Control of _________ o Two primary objectives of _________ over inventory are:  _________________________________________

Safeguarding Inventory o The _________ _________ authorizes the purchase of the _________ from an approved vendor.

Safeguarding _________ o The _________ report establishes an _________ record of the _________ of the inventory.

Safeguarding Inventory o Recording inventory using a _________ inventory system is also an _________ means of control. The amount of inventory is always _________ in the _________ _________ ledger.

Safeguarding Inventory o Controls for safeguarding inventory should include _________ _________ to prevent damage and _________ or _________ theft. Some examples of security measures include the following:  _________________________________________.

Reporting Inventory o A __________ inventory or count of inventory should be taken near _____-_______ to make sure that the ____________ of inventory reported in the financial statements is ____________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe three inventory cost flow assumptions and how they impact the income statement and balance sheet. 2

Inventory Cost Flow Assumptions o Under the specific ____________ ____________ cost flow method, the ____________ sold is identified with a ____________ ____________.

Inventory Cost Flow Assumptions o Under the _____-___, ____-_______ (FIFO) inventory cost flow method, the ____________ units purchased are assumed to be ____________ ____________ and the ____________ inventory is made up of the ____________ ____________ purchases.

Inventory Cost Flow Assumptions o Under the _____-__, _____-______ (LIFO) ____________ cost flow method, the ____________ units purchased are assumed to be ____________ ____________ and the ____________ inventory is made up of the ____________ units purchased.

Inventory Cost Flow Assumptions o Under the ____________ ____________ inventory cost flow method, the cost of the units sold and in ____________ inventory is a ____________ average of the ____________ costs.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Determine the cost of inventory under the perpetual inventory system, using the FIFO, LIFO, and weighted average cost methods. 3

F IRST -I N, F IRST - O UT M ETHOD (continued)

Weighted Average Cost Method o When the ____________ ____________ cost method is used in a perpetual system, an average cost for ____________ item is computed ____________ time a purchase is ____________. o This unit cost is then used to determine the ____________ of each sale until another ____________ is made and a new ____________ is computed. This ____________ technique is called a ____________ ____________.

W EIGHTED A VERAGE C OST M ETHOD

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Determine the cost of inventory under the periodic inventory system, using the FIFO, LIFO, and weighted average cost methods. 4

_____-_______, _____-_______ Method o Using FIFO, the ____________ batch purchased is considered the ____________ batch of merchandise ____________. The physical flow does ____________ have to ____________ the accounting method chosen.

_____-_______, _____-_______ Method o Using LIFO, the most recent batch purchased is considered the ____________ batch of merchandise ____________. The actual flow of goods ______ ______ have to be LIFO. For example, _____________________________ __________________________________________ __________________________________________

____________ Average Cost Method o The _______ _________ cost method uses the weighted average unit ____________ for determining cost of merchandise ____________ and the ____________ merchandise inventory.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Compare and contrast the use of the three inventory costing methods. 5

Comparing Inventory Cost Methods o Using the perpetual inventory system illustration with sales of $39,000 (1,300 units x $30), the differences in ending inventory, cost of merchandise sold, and gross profit are illustrated shown.

P ARTIAL I NCOME S TATEMENTS

Comparing Inventory Cost Methods o When the FIFO method is used during a period of inflation or _________ prices, FIFO will show a _________ profit than the other two inventory costing methods.

Comparing Inventory Cost Methods o When the LIFO method is used during a period of inflation or _________ _________, LIFO will show a _________ profit than the other two inventory costing methods. o During a period of _________ prices, using LIFO offers an _________ _________ savings compared to the other two inventory costing methods.

Comparing Inventory Cost Methods o The weighted average cost method of inventory costing is a _________ between FIFO and LIFO. _________ _________ for the weighted average cost method is somewhere between the _________ _________ of LIFO and FIFO.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe and illustrate the reporting of merchandise inventory in the financial statements. 6

_________ Merchandise Inventory o Cost is the primary basis for _________ and _________ inventories in the financial statements. However, inventory may be valued at other than cost in the following cases:  __________________________________________.

Valuation at ______ of ______ or Market o Market, as used in ___- ___-___-____-______ method, is the cost to _________ the merchandise on the _________ date.

Valuation at Lower of _______ or _________ o _________ and _________ cost can be determined for the following:  _______________________________________________.

Valuation at Net ______ Value o Merchandise that is out of date, ______, or ______ should be ______ ______ to its ______ ______ value. This is the estimated ______ price less any ______ costs of ______, such as sales ______ or ______ advertising.

Original cost$1,000 Estimated selling price800 Selling expenses150 Valuation at Net Realizable Value o Assume the following data about an item of damaged merchandise: o The merchandise should be valued at its net realizable value of $_____ ($_____ – $_____ ).

Merchandise Inventory on the Balance Sheet o Merchandise inventory is usually presented in the ________ ________ section of the balance sheet, following ________.

Inventory Errors o Some reasons that ________ ________ may occur include the following:  ______________________________________________.

Inventory Errors o Inventory errors often arise from _________ inventory. Manufacturer sometimes _________ merchandise to _________ who act as the _________ agent.

Inventory Errors o The manufacturer, called the _________, retains title until the _________ are _________. Such merchandise is said to be shipped on _________ to the retailer, called the _________.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe and illustrate the inventory turnover and the number of days’ sales in inventory in analyzing the efficiency and effectiveness of inventory management. 7

Inventory Turnover o _________ _________ measures the relationship between _________ of _________ _________ and the amount of inventory carried during the _________. It is calculated as follows: Inventory Turnover =

Number of Days’ Sales in Inventory = Inventory Turnover o The number of _________ _________ in inventory measures the _________ of _________ it takes to acquire, _________, and _________ the inventory. It is computed as follows:

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Appendix Estimating Inventory Cost

Retail _________ of Inventory Costing o The _________ inventory method of estimating inventory cost requires _________ and _________ prices to be maintained for the merchandise _________ for sale. o A ratio of _________ to _________ price is then used to convert _________ _________ at retail to _________ the _________ inventory cost.

Gross Profit Method of Inventory Costing o The _________ _________ method uses the estimated _________ _________ for the period to _________ the inventory at the _________ of the period.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Inventories The End