1. Inventories: Measurement Sid Glandon, DBA, CPA Associate Professor of Accounting

2. Classification Merchandising Inventory –All costs of getting merchandise ready for sale Manufacturing Inventory –Raw materials –Work in process Raw materials Labor Overhead –Finished goods

3. Inventory Control Perpetual Inventory System –Merchandise inventory –Cost of goods sold Periodic Inventory System –Purchases –Purchase returns and allowances –Purchase discounts –Freight in

4. Perpetual Inventory System

5. Periodic Inventory System

6. Year-End Adjusting Journal Entry: Periodic Inventory System

7. Physical Goods in Inventory Goods in transit –f.o.b. shipping point –f.o.b. destination Consigned goods Sales returns –Sales with buyback agreement –Sales with high rates of return

8. Cost of Inventory Purchases Purchase returns Purchase discounts Gross method –Record discount when payment is made Net method –Assume discount will be taken –Record interest expense on discounts not taken Freight-in

9. Perpetual Inventory System: Partial Income Statement

10. Periodic Inventory System: Partial Income Statement

11. Cost Flow Assumptions Specific identification Average cost –Periodic, weighted average for period –Perpetual, moving weighted average FIFO (first-in, first-out) LIFO (last-in, first-out) –Periodic, based on cost flow during period –Perpetual, based on each transaction

12. Dollar-Value LIFO Measured in terms of dollar value, not physical quantity of goods All amounts are converted to base-year prices A layer is formed when –Ending inventory exceeds beginning inventory (at base-year prices)