INVENTORIES CONTROL

A FLIPPED LESSON FOR TCE ACCOUNTING STUDENTS

NATURE OF INVENTORIES

• ITEMS HELD BY THE BUSINESS TO SELL AT A PROFIT

IMPORTANCE OF INVENTORIES

CLICK ON ONE OF THE LEMONADE GAMES

IMPORTANCE OF INVENTORIES

• INVENTORIES ARE THE DRIVER OF SALES AND PROFIT FOR THE BUSINESS.

• A HIGH TURNOVER OF INVENTORIES MEANS A HIGHER CASH FLOW.

• A LOT OF MONEY IS INVESTED IN INVENTORIES

• TO MEET CUSTOMER DEMAND BY OFFERING INVENTORIES THAT THEY WANT AND AT THE RIGHT PRICE. QUALITY AND TYPE OF GOODS OFFERED FOR SALE.

• TO OFFER A RANGE OF INVENTORIES THAT CUSTOMERS CAN CHOOSE FROM.

PERPETUAL INVENTORY METHOD

• THE METHOD OF ACCOUNTING FOR INVENTORIES THAT KEEPS A CONTINUOUS RECORD OF ALL INVENTORIES PURCHASED AND SOLD.

COST PRICE AND SALES PRICE

• KEEP RECORD OF COST PRICE (COGS) AND SALE PRICE OF INVENTORIES (SALES)

STOCK CARDS

• USE OF STOCK CARDS FOR EACH ITEM

• A STOCK TAKE IS TAKEN AT REGULAR INTERVAL TO CHECK THE RECORD OF INVENTORIES CONTROL ACCOUNT.

INVENTORIES ADJUSTMENT

• DISCREPANCY BETWEEN ACTUAL NUMBER FROM STOCK TAKE AND RECORD OF INVENTORIES CONTROL ACCOUNT.

INVENTORIES ADJUSTMENT

• EXAMPLES OF STOCK LOSS AND GAIN

• VIEW CLIP:

• “WHY AN INVENTORIES ADJUSTMENT IS REQUIRED”

INVENTORIES ADJUSTMENT - LOSS

• THEFT.

• OVER SUPPLY TO CUSTOMER.

• UNDERSUPPLY FROM A SUPPLIER.

• DAMAGES AND BREAKAGES.

• STOCK TAKE ERROR.

INVENTORIES ADJUSTMENT - GAIN

• OVERSUPPLY FROM A SUPPLIER

• UNDERSUPPLY TO A CUSTOMER

• STOCK TAKE ERROR.

GENERAL JOURNAL ENTRIES

• VIEW CLIP

• “ACCOUNTING FOR AN INVENTORY ADJUSTMENT”

INVENTORIES ADJUSTMENT – IMPACT ON PROFIT

• INVENTORY LOSS – EXPENSE – DECREASE PROFIT.

• INVENTORY GAIN – REVENUE – INCREASE PROFIT.

CONTROL OVER INVENTORIES

•STORAGE

•PURCHASE

•SALE

•SIZE / LEVEL OF INVENTORIES

MANAGING INVENTORIES – STORAGE & SECURITY

• SOME INVENTORY ITEMS CAN BE STOLEN, GET LOST OR BECOME DAMAGED OR SPOILT.LEADS TO DISCOUNTING ITEMS AND LOWER PROFITS.

• SECURITY TO PREVENT THEFT AND PILFERING BY STAFF.

• SECURITY METHODS INCLUDE:TAGS, SCANNERS, CAMERAS, BAG CHECKS, SECURITY STAFF.

MANAGING INVENTORIES - PURCHASE

• JUST IN TIME PURCHASING TO MAINTAIN OPTIMUM LEVELS OF INVENTORIES

• BIG INVESTMENT IN INVENTORIES.

• TOO LITTLE TURNS OFF CUSTOMERS.

• TOO MUCH INCREASES COSTS OF STORAGE – RENT OF PREMISES AND WAREHOUSE.

• NEED TO MANAGE REORDER POINT, REORDER QUANTITY AND LEAD IN TIME FOR DELIVERY.

MANAGING INVENTORIES - SALE

• Take orders and freight in the next day.

• Quick dispatch of orders and delivery.

• Maintain accurate inventory levels.

• Increase inventories turnover.

INVENTORY TURNOVER

• INVENTORY TURNOVER (STOCK TURNOVER)=

• COST OF GOODS SOLD AVERAGE STOCK

• VARIES WITH EACH INDUSTRY.

• THE HIGHER THE BETTER.

INVENTORIES TURNOVER

• COGS = $265000

• INVENTORIES 1/7/13 = $90000

• INVENTORIES 30/6/14 = $110000

• = AVERAGE INVENTORIES = (90000+110000)/2 = 100000

• INVENTORIES TURNOVER = COGS/AVERAGE INVENTORIES

• =265000/100000

• =2.65 TIMES

TAKE THE TEST

• YOU WILL BE SENT LOGIN DETAILS FROM CLASSMARKER.

• YOU HAVE 20 MINUTES.

• ONE GO.

• IT WILL BE ASSESSED.