1. Inventories Making Accounting Relevant Businesses have different types of inventories. Service businesses may have inventories of supplies used in their operations. Retailers have inventories of merchandise for sale. Making Accounting Relevant Businesses have different types of inventories. Service businesses may have inventories of supplies used in their operations. Retailers have inventories of merchandise for sale. Select a business in your area. What types of items does this business have in inventory?

2. Section 1Determining the Quantity of Inventories What You’ll Learn  The purpose of the Merchandise Inventory account.  The difference between a periodic and a perpetual inventory system. What You’ll Learn  The purpose of the Merchandise Inventory account.  The difference between a periodic and a perpetual inventory system.

3. Why It’s Important For marketing and financial reporting purposes, a merchandising business needs to know the quantity of merchandise on hand. Why It’s Important For marketing and financial reporting purposes, a merchandising business needs to know the quantity of merchandise on hand. Key Terms  perpetual inventory system  point-of-sale terminal  online  periodic inventory system Key Terms  perpetual inventory system  point-of-sale terminal  online  periodic inventory system Section 1Determining the Quantity of Inventories (cont'd.)

4. Merchandise Inventory  The Merchandise Inventory account shows the cost of goods purchased for resale.  Merchandise Inventory typically is one of the largest asset accounts.  The Merchandise Inventory account shows the cost of goods purchased for resale.  Merchandise Inventory typically is one of the largest asset accounts. Section 1Determining the Quantity of Inventories (cont'd.)

5. Determining the Quantity of Inventories Two methods are used to track merchandise: Determining the Quantity of Inventories Two methods are used to track merchandise:  The perpetual inventory system  The perpetual inventory system Section 1Determining the Quantity of Inventories (cont'd.)  The periodic inventory system  The periodic inventory system

6. The Perpetual Inventory System  Keeps a constant, up-to-date record of merchandise on hand.  Reports what merchandise is on hand at any point in time.  Every time a purchase or sale occurs, an entry is recorded in the Merchandise Inventory account.  After every sale, the cost of merchandise sold is recorded in the accounting records.  Keeps a constant, up-to-date record of merchandise on hand.  Reports what merchandise is on hand at any point in time.  Every time a purchase or sale occurs, an entry is recorded in the Merchandise Inventory account.  After every sale, the cost of merchandise sold is recorded in the accounting records. Section 1Determining the Quantity of Inventories (cont'd.)

7. The Periodic Inventory System  Inventory records are updated only after a physical count of merchandise on hand is made.  Inventory records are not adjusted for every purchase and sale.  Inventory records are updated only after a physical count of merchandise on hand is made.  Inventory records are not adjusted for every purchase and sale. Section 1Determining the Quantity of Inventories (cont'd.)

8. The Physical Inventory Count  Businesses take a physical count of their merchandise at least once a year.  Inventory is usually counted when it is at its lowest level.  The total number of a particular item on hand is recorded on an inventory card or an inventory sheet.  Businesses take a physical count of their merchandise at least once a year.  Inventory is usually counted when it is at its lowest level.  The total number of a particular item on hand is recorded on an inventory card or an inventory sheet. Section 1Determining the Quantity of Inventories (cont'd.)

9. Check Your Understanding What is the difference between a periodic and a perpetual inventory system? Section 1Determining the Quantity of Inventories (cont'd.)