1. Inventory and Cost of good sold Chapter 5 T.Hend Alajaji

2. Objectives : 1. Inventory. 2. Explain how to report inventory and cost of goods sold. 3. Compute costs using four inventory costing methods

3. Ch5 InventoryGoods Raws Materils Merchandis inventory Manufacture inventory Raw Materials Work in Process Finished goods Merchandising Inventory = Balance Sheet Cost of Goods = Income Statement

5. Inventory :  inventory is a stock of goods or other items owned by a firm and hold for sale or for processing before being sold, as part of a firm’s ordinary operations.  Goods or Raw material owned by the company.

6. Types of Inventory Merchandisers...  Buy finished goods.  Sell finished goods. Manufacturers...  Buy raw materials.  Produce and sell finished goods. Raw Materials Work in Process Finished goods Merchandise inventory Materials waiting to be processed Partially complete products Completed products awaiting sale 7-6

7. Learning Objective 2 Explain how to report inventory and cost of goods sold in financial statement. 7-7

8. Balance Sheet and Income Statement Reporting 7-8

9. Cost of Goods Sold Equation BI + P – CGS = EI American Eagle Outfitters’ beginning inventory was $4,800. During the period, the company purchased inventory for $10,200. The cost of goods sold for the period is $9,000. Compute the ending inventory.

10. Cost of Goods Sold Equation Beginning Inventory $4,800 + Goods Available for Sale $15,000 Purchases $10,000 Ending Inventory $6,000 (Balance Sheet) Cost of Goods Sold $9,000 (Income Statement)

11. Learning Objective 3 Compute costs using four inventory costing methods.

12. Inventory Costing Methods First-in, first-out (FIFO) Last-in, first-out (LIFO) Weighted average

13. Inventory Costing Methods Consider the following information This method individually identifies and records the cost of each item sold as part of cost of goods sold. If the items sold were identified as the ones that cost $70 and $95, the total cost of those items ($70 + 95 = $165) would be reported as Cost of Goods Sold. The cost of the remaining item ($75) would be reported as Inventory on the balance sheet at the end of the period. Specific Identification May 5 $75 cost May 3 $70 cost May 6 $95 cost 7-13

14. Inventory Costing Methods FIFOLIFOWeighted average May 6 $95 cost May 5 $75 cost May 3 $70 cost May 6 $95 cost May 5 $75 cost May 3 $70 cost May 6 $95 cost May 5 $75 cost May 3 $70 cost Sold Still there Sold Still there Sold Still there $240 3 = $80 per unit 7-14

15. Inventory Costing Methods Summary

16. Inventory Cost Flow Computations Weighted Average Weighted Average Cost = Cost of goods Available for Sale Number of Units Available for Sale Weighted Average Cost = $410 50 units = $8.20 per unit

17. Inventory Cost Flow Computations 15 units @ $8.20 35 units @ $8.20

18. Financial Statement Effects 7-18

19. Financial Statement Effects 7-19