中山大学：《基础会计学》（英文版）Lesson 7 Merchandise Inventories and Cost of Sales

m中山大學管捏學院 经m00 BUSINESS SUN YAT-SEN UNIVERSIT Lesson 7 Merchandise nventories and cost of sales Mask team of FJADAWIEAL ACOJANAVA School of Business, Sun Yat-sen University

Lesson 7 Merchandise Inventories and Cost of Sales Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Yat-sen University

Outline Q Flow of inventory cost Q Items and costs of merchandising inventory C Assigning costs to inventory C Lower of cost or market Q Errors in measuring inventory Q Inventory estimating method Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity

2 Outline ⧫ Flow of inventory cost ⧫ Items and costs of merchandising inventory ⧫ Assigning costs to inventory ⧫ Lower of cost or market ⧫ Errors in measuring inventory ⧫ Inventory estimating method

Introduction Q While sales and purchases are the focus of operations, inventory is no less important. Inventory costing and evaluation methods can substantially influence the bottom line. Since Chinas listed companies were permitted to write down inventories in 1998, inventory has long been criticized as the "income adjustor,. besides, inventory costing policies and the scope of inventory can also significant change the current and future years income numbers Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 3

3 Introduction ⧫ While sales and purchases are the focus of operations, inventory is no less important. Inventory costing and evaluation methods can substantially influence the bottom line. Since China’s listed companies were permitted to write down inventories in 1998, inventory has long been criticized as the “income adjustor”. Besides, inventory costing policies and the scope of inventory can also significant change the current and future years income numbers

Nature of Inventory and Cost of Goods sold Beginning 十 Purchases Inventory for the period Goods Available for Sale Ending Inventory Cost of Goods Sold (Balance Sheet) (Income Statement Beginning inventory+Purchases-Ending inventory= Cost of goods sold Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity

4 Nature of Inventory and Cost of Goods Sold Beginning Inventory Purchases for the Period Ending Inventory (Balance Sheet) Goods Available for Sale Cost of Goods Sold (Income Statement) Beginning inventory + Purchases – Ending inventory = Cost of goods sold + +

Flow of Inventory Costs Merchandiser Merchandise Merchandise Cost of Purchases Inventory Goods sold Manufacturer Raw Materials Raw Materials Work in Process Finished Goods Inventory Inventory Inventory Direct Labour Factory Cost of Overhead Goods sold Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 5

5 Flow of Inventory Costs Merchandise Purchases Cost of Goods Sold Merchandise Inventory Direct Labour Factory Overhead Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Cost of Goods Sold Merchandiser Manufacturer Raw Materials

Accounting for Inventory C Accounting for inventory requires several decisions which include n Items to include in cost o Inventory System. Perpetual or periodic n Costing Method. fifo, liFo, Weighted average, specific d D Use of estimates Gross profit method, Retail inventory method Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity

6 Accounting for Inventory ⧫Accounting for inventory requires several decisions which include:  Items to include in cost.  Inventory System. →Perpetual or Periodic  Costing Method. →FIFO, LIFO, Weighted Average, Specific ID  Use of estimates. →Gross profit method, Retail inventory method

Items in Merchandise Inventory INventory includes all goods owned by a company and held for sale. D Items requiring special attention: Goods in transit → goods on consignment -Obsolete or damaged goods Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 7

7 Items in Merchandise Inventory ⧫Inventory includes all goods owned by a company and held for sale.  Items requiring special attention: →Goods in Transit →Goods on consignment →Obsolete or damaged goods

Costs of Merchandise Inventory V All expenditures necessary to bring an item to a saleable condition and location d This includes Invoice price less discounts Import duties → Transportation-in Storage -Insurance Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity

8 Costs of Merchandise Inventory ⧫All expenditures necessary to bring an item to a saleable condition and location.  This includes: →Invoice price less discounts →Import duties →Transportation-in →Storage →Insurance

Assigning Costs to Inventory Management must decide on method of determining unit cost. This will affect both the income statement and the balance sheet 囗 Methods Specific Identification FIFO →→LIFO →→ Average cost Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity

9 ⧫ Management must decide on method of determining unit cost. ⧫ This will affect both the income statement and the balance sheet.  Methods: →Specific Identification →FIFO →LIFO →Average Cost Assigning Costs to Inventory

Specific Identification This method is used when items 囗 Are unique n Can be directly identified with a specific purchase and its invoice. EXamples: Automobiles, custom furniture, art Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity

10 Specific Identification ⧫This method is used when items:  Are unique.  Can be directly identified with a specific purchase and its invoice. Examples: Automobiles, custom furniture, art