CHAPTER 19 ACCOUNTING FOR INVENTORY. 2 19-1 DETERMINING MERCHANDISE INVENTORY The largest asset of a merchandising business is Merchandise Inventory.

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CHAPTER 19 ACCOUNTING FOR INVENTORY

DETERMINING MERCHANDISE INVENTORY The largest asset of a merchandising business is Merchandise Inventory. -Many businesses fail because of too much or too little inventory. -Need to control quantity: 2 ways to determine quantity: Periodic Inventory- Counting & weighing Perpetual Inventory- Continuous book record -UPC - Universal Product Code

3 INVENTORY RECORD page Write the stock number and description before the periodic inventory begins. 2.Write the actual count in the No. of Units on Hand column. 3.Write the unit price and calculate the total cost after the physical inventory is completed. A form used during a periodic inventory to record information about each item of merchandise on hand is an inventory record.

4 STOCK RECORD page Purchase information2.Sales information 3.New balance on hand A form used to show the kind of merchandise, quantity received, quantity sold, and balance on hand is called a stock record. A file of stock records for all merchandise on hand is a stock ledger.

19-2 DETERMINING COST OF MERCHANDISE INVENTORY Most businesses use one of three inventory costing methods: First-in, First out (FIFO) Last-in, First out (LIFO) Weighted Average

6 FIRST-IN, FIRST-OUT INVENTORY COSTING METHOD page Total units on hand 2.Units from the most recent purchase 3.Units needed to equal the total units on hand 4.Unit price times fifo units 5.Total fifo cost

7 4.Units needed to equal total units on hand LAST-IN, FIRST-OUT INVENTORY COSTING METHOD page Total units on hand 3.Units from the earliest purchase 2.Beginning inventory units5.Unit price times lifo units 6.Total lifo cost

8 3.Cost of ending inventory WEIGHTED-AVERAGE INVENTORY COSTING METHOD page Weighted- average price per unit 1.Total cost of inventory available

9 CALCULATING THE COST OF MERCHANDISE SOLD page 572 Cost of Merchandise Sold = Fifo Cost of Ending Inventory – Cost of Merchandise Available for Sale $634.00=$386.00–$1,020.00

10 COMPARISON OF INVENTORY METHODS page 572

11 page 574 (continued on next slide) You can estimate inventory by using previous year’s percentage of gross profit on operations: Gross Profit Method 19-3 ESTIMATING INVENTORY

12 GROSS PROFIT METHOD OF ESTIMATING INVENTORY page 574 (continued from previous slide)