Topic 6 Merchandising Inventory
2017-04-07 22:20:44 0 举报AI智能生成
Financial Accounting Topic 6
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Classification of Inventory
current assets
Manufacturing Company
taking a physical inventory(实物盘点)
Determine the number of units of inventory owned by the company and to value them
Taken when
the business slow or closed
at the end of accounting period
Merchandising Company
Determining Inventory Quantities
Physical inventory taken for two reasons
Perpetual System
Check accuracy of inventory records.
Determine amount of inventory lost (wasted raw materials, shoplifting, or employee theft).
Periodic System
Determine the inventory on hand
Determine the cost of goods sold for the period
Determining Ownership of Goods
Goods in Transit
Free On Board (FOB) Shipping Point
Free On Board (FOB) Destination Point
Consigned Goods
Consignee remits proceeds (less consignee’s fee) to consignor when inventory is sold
Such inventory is included in the consignor’s (NOT the consignee’s) inventory until sold
Inventory Cost Flow Methods
Inventory system(summary)
Perpetual Inventory System
Continual record of the cost of each item on hand
Revenue
No more entry at the end
Periodic Inventory System
Inventory account updated ONLY at the end of the period
Revenue
End of period Compute & record COGS
Periodic Inventory System
Beginning Inventory on hand + Cost of Goods Purchased
= Cost of Goods Available for Sale (COGAS)
Beginning Inventory on hand + Cost of Goods Purchased
= Cost of Goods Available for Sale (COGAS)
Cost of Goods Available for Sale (COGAS) - Ending Inventory on hand (physical count)
= Cost of Goods Sold (COGS)
= Cost of Goods Sold (COGS)
Cost Flow Methods
(1) Specific identification
Actual Physical flow
Specific identification method tracks the actual physical flow of the goods
Small volum but high value: COGS= Inventory had sold
卖掉的就是COGS, 没卖掉的就Iventory
Cost of goods sold depends on which item is sold
Suitable for goods with high value but small volume
Periodic Inventory System – Specific Identification Method
COGAS-Ending Inventory on hand =COGS
Assumed Cost Flow Methods
(2) First-in, first-out (FIFO)
The earliest goods purchased the first to be sold
GOGS:The earliest goods purchased the first to be sold
Ending inventory : items purchased late in the year.倒着做账
(3) Average-cost
Assumes that the goods available for sale are homogeneous (the same).
Cost of Goods available for sale: based on the weighted average unit cost.
Average Unit Cost = the COGS /units available for sale
Suitable for identical goods with large quantity
(4) Last-in, first-out (LIFO)* not allow in IFRS and HK
Basis of Selecting Cost Flow Method
Comparison of the Cost Flow Methods
In Period of Rising Prices
In Period of Rising Prices
Average
Average: higher COGS lower Tax lower Net Income & lower EI
FIFO
FIFO: lower COGS higher Tax higher Net Income & higher EI
Basis for Selection of Cost Flow Method
Income Statement Effect
Sales and COGAS are the same for FIFO and average-cost
In period of inflation, FIFO matches the oldest (& lowest) costs against revenue higher gross profit & net income external users to view the company more favorably & management bonuses, if based on net income, will be higher.
Balance Sheet Effect
FIFO: ending inventory is closest to current values
Average-cost: ending inventory may be understated during inflation
Tax Effect
Average-cost: Lower income taxes during times of rising prices (because of lower net income).
FIFO: Higher net income during inflation may increase income taxes due.
Deflation
the relationship is unchanged but the effect turns upside down
Perpetual Inventory Method
The same data is used as for the periodic system, except specific sales dates and amounts have been added
Average Cost Methods
Average computed after EACH purchase or series of purchases - “moving-average method”.
父节点
Keep track of the components of inventory at each step
As sales are made, the costs must be assigned in the proper order
As sales are made, the costs must be assigned in the proper order
Lower of Cost or Net Realizable Value (NRV)
Inventory Errors
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