Post on 24-Dec-2015
transcript
Objectives :
1. Inventory .
2. Explain how to report inventory and cost of
goods sold.
3. Compute costs using four inventory costing
methods
Ch5
Inventory
Goods
Raws Materils
Merchandis inventory
Manufacture inventory
Raw MaterialsWork in Process
Finished goods
Merchandising Inventory =
Balance Sheet
Cost of Goods = Income Statement
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 .
TYPES OF INVENTORY
Merchandisers . . . Buy finished
goods. Sell finished
goods.
Manufacturers . . . Buy raw
materials. Produce and sell
finished goods.
Raw MaterialsWork in ProcessFinished goods
Merchandise inventory
Materials waiting tobe processed
Partially complete products
Completed products awaiting sale
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LEARNING OBJECTIVE 2
Explain how to report inventory and cost of goods sold in financial
statement.
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COST OF GOODS SOLD EQUATION
Beginning Inventory 4,800$ + Purchases 10,200 = Cost of Goods Available for Sale 15,000 – Cost of Goods sold 9,000 = Ending Inventory 6,000$
Cost of Goods Sold Calculation
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.
COST OF GOODS SOLD EQUATION
BeginningInventory
$4,800
BeginningInventory
$4,800+
Goods Availablefor Sale$15,000
Purchases$10,000
Purchases$10,000
EndingInventory
$6,000
EndingInventory
$6,000
StillHere
(Balance Sheet)
Cost ofGoods Sold
$9,000
Cost ofGoods Sold
$9,000
Sold
(Income Statement)
INVENTORY COSTING METHODS
First-in, first-out(FIFO)
First-in, first-out(FIFO)
Last-in, first-out(LIFO)
Last-in, first-out(LIFO)
Weighted average
Weighted average
INVENTORY COSTING METHODS
May 3 Purchased 1 unit for $70May 5 Purchased 1 more unit for $75May 6 Purchased 1 more unit for $95May 8 Sold 2 units for $125 each
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
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INVENTORY COSTING METHODS
FIFO LIFO Weighted 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$70 cost
Sold Sti
ll
there
Net Sales 250$ Cost of Goods Sold 145 Gross Profit 105$
Inventory 95$
Income Statement
Balance Sheet
Sold
Sti
ll
there
Net Sales 250$ Cost of Goods Sold 170 Gross Profit 80$
Inventory 70$
Income Statement
Balance Sheet
Sold
Still
there
240$3
= $80per unit
Net Sales 250$ Cost of Goods Sold 160 Gross Profit 90$
Inventory 80$
Income Statement
Balance Sheet
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INVENTORY COSTING METHODS
WeightedFIFO LIFO Average
Cost of Goods sold (Income Statement) Oldest cost Newest cost Average costInventory (Balance sheet) Newest cost Oldest cost Average cost
Summary
INVENTORY COST FLOW COMPUTATIONS
# of Cost TotalDescription Units per Unit Cost
Beginning Inventory 10 7 70$ Purchase 30 8 240 Purchase 10 10 100 Cost of Goods Available for Sale 50 410$
Weighted Average
WeightedAverage Cost =
Cost of goods Available for SaleNumber of Units Available for Sale
WeightedAverage Cost =
410$50 units
=8.20$ per unit
INVENTORY COST FLOW COMPUTATIONS
Weighted Average Beginning Inventory 10 units × 7$ = 70$ + Purchases 30 units × 8$ = 240
10 units × 10$ = 100 Cost of Goods Available for Sale 410$ – Ending Inventory Cost of Goods Sold
Weighted Average Beginning Inventory 10 units × 7$ = 70$ + Purchases 30 units × 8$ = 240
10 units × 10$ = 100 Cost of Goods Available for Sale 410$ – Ending Inventory 123 Cost of Goods Sold
Weighted Average Beginning Inventory 10 units × 7$ = 70$ + Purchases 30 units × 8$ = 240
10 units × 10$ = 100 Cost of Goods Available for Sale 410$ – Ending Inventory 123 Cost of Goods Sold 287$
15 units @ $8.20
35 units @ $8.20
FINANCIAL STATEMENT EFFECTS
WeightedEffects on the Income Statement FIFO LIFO AverageSales 525$ 525$ 525$ Cost of Goods Sold 270 300 287 Gross Profit 255 225 238 Operating Expenses 125 125 125 Income from Operations 130 100 113 Other Revenue (Expenses) 20 20 20 Income before Income Tax Expense 150 120 133 Income Tax Expense (30%) 45 36 40 Net Income 105$ 84$ 93$
Effects on the Balance SheetInventory 140$ 110$ 123$
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FINANCIAL STATEMENT EFFECTS
Effects of Increasing Costs on the Financial Statements
FIFO LIFOInventory (Balance sheet) Higher LowerCost of Goods Sold (Income Statement) Lower Higher
Effects of Decreasing Costs on the Financial Statements
FIFO LIFOInventory (Balance sheet) Lower HigherCost of Goods Sold (Income Statement) Higher Lower
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