Accounting for Merchandise Inventory pdf

Accounting for Merchandise Inventory Chapter 6 Perpetual systems maintain a running record to show the inventory on hand at all times. Periodic systems do not keep a continuous record of inventory on hand. Inventory Accounting Systems Compute and record journal entries for perpetual inventory amounts under FIFO, LIFO, and average cost. Objectives 1 and 2 Debit Cash or Accounts Receivable Credit Sales Revenue Debit Cost of Goods Sold Credit Inventory Perpetual System Debit Inventory Credit Cash or Accounts Payable Cost of inventory on hand = Quantity × unit cost Computing the Cost of Inventory • Physical count is made at least once a year, even with a perpetual system. • Consigned goods are excluded. Perpetual System Examples • Assume the following: Nov. 1 Beg. Inventory 1 @ $40 15 Purchase 6 @ $45 15 Sale 4 26 Purchase 7 @ $50 30 Sale 8 Perpetual System FIFO Example • Many companies keep their perpetual inventory records in quantities only. • Other companies keep perpetual records in both quantities and dollar cost. Perpetual FIFO • Consistent with the physical flow of inventory • Oldest inventory sold first • Most recent purchases make-up ending inventory Perpetual System FIFO Example Item: Ski Parka Received Sold Balance on Hand Unit Unit Unit Date Qty. Cost Total Qty. Cost Total Qty. Cost Total Nov. 1 1 $40 $40 5 6 $45 $270 1 40 40 6 45 270 15 1 40 40 3 45 135 3 45 135 Columbia Sportswear Perpetual System FIFO Example Item: Ski Parka Received Sold Balance on Hand Unit Unit Unit Date Qty. Cost Total Qty. Cost Total Qty. Cost Total Nov. 26 7 $50 $ 350 3 $45 $135 7 50 350 30 3 $45 135 5 50 250 2 50 100 Totals 13 $ 620 12 $560 2 $100 Columbia Sportswear [...]... Model Budgeted Cost of Goods Sold + Budgeted Ending Inventory = Budgeted Cost of Goods Available for Sale – Actual Beginning Inventory = Purchases Cost of Goods Sold under a periodic Beginning Inventory $100,000 Cost of Goods Available for Sale $660,000 + – Ending Inventory $120,000 Net Purchases $560,000 = Cost of Goods = Sold $540,000 Periodic System Inventory 100,000 100,000 Beginning Beginning Balance... Example Nov 5 Inventory ……….…270 Accounts Payable……270 15 15 Accounts receivable…320 Sales Revenue……….350 Cost of Goods Sold…175 Inventory ………….175 Perpetual System FIFO Example Nov 26 Inventory ……….…350 Accounts Payable……350 30 Accounts receivable…640 Sales Revenue……….640 30 Cost of Goods Sold…385 Inventory ………….385 Perpetual LIFO • Is not consistent with the physical flow of inventory • Oldest inventory. .. Perpetual System LIFO Example Nov 5 Inventory ……….…270 Accounts Payable……270 15 15 Accounts receivable…320 Sales Revenue……….350 Cost of Goods Sold…180 Inventory ………….180 Perpetual System LIFO Example Nov 26 Inventory ……….…350 Accounts Payable……350 30 Accounts receivable…640 Sales Revenue……….640 30 Cost of Goods Sold…395 Inventory ………….395 Perpetual System Average Cost • Ending inventory and cost of goods sold... cost to determine ending inventory • Inventory purchases are debited to the purchases account • The inventory account carries the beginning inventory balance until adjusted at period end Units Purchased in 20xx January 8 May 19 October 23 Total units Units sold Units left 20 units @ $20 = $ 400 55 units @ $30 = $1,650 25 units @ $31 = $ 775 100 70 30 Units Sold and in Ending Inventory Units sold by... 48.30 97 $ Perpetual System Average Cost Example Nov 5 Inventory ……….…270 Accounts Payable……270 15 15 Accounts receivable…320 Sales Revenue……….350 Cost of Goods Sold…177 Inventory ………….177 Perpetual System Average Cost Example Nov.26 Inventory ……….…350 Accounts Payable……350 30 30 Accounts receivable…640 Sales Revenue……….640 Cost of Goods Sold…386 Inventory ………….386 Objective 3 Compare the effects of... Comparison of Methods Ending Inventory FIFO $100.00 LIFO $ 90.00 Weighted-average $ 97.00 Comparison of Methods Cost of Goods Sold FIFO $560.00 LIFO $575.00 Weighted-average $563.00 Comparison of Methods • Gross Margin from Sales: FIFO $400.00 LIFO $ 385.00 Weighted-average $ 397.00 When prices are rising LIFO produces the lowest income and lowest income tax Objective 4 Compute periodic inventory amounts under... Inventory Units sold by date: Jan 5 17 May 19 33 Oct 23 20 Total sales 70 30 units left in inventory Specific Identification 20 Units @ $31 Cost of Goods Sold Oct 23 $ 620 May 19 990 Jan 5 340 Total $1,950 5 Units @ $31 33 Units @ $30 22 Units @ $30 17 Units @ $20 3 Units @ $20 Specific Identification 20 Units @ $31 Ending Inventory Oct 23 $155 May 660 Jan 60 Total $875 5 Units @ $31 33 Units @ $30 22 Units... Accounts receivable…640 Sales Revenue……….640 30 Cost of Goods Sold…385 Inventory ………….385 Perpetual LIFO • Is not consistent with the physical flow of inventory • Oldest inventory costs make-up ending inventory • Cost of goods sold is assumed to be from the most recent purchases Perpetual System LIFO Example Columbia Sportswear tem: Ski Parka Received Unit Date Qty Cost Total Nov 1 5 15 6 $45 Sold Unit . Accounting for Merchandise Inventory Chapter 6 Perpetual systems maintain a running record to show the inventory on hand at all times. Periodic systems do not keep a continuous record of inventory. do not keep a continuous record of inventory on hand. Inventory Accounting Systems Compute and record journal entries for perpetual inventory amounts under FIFO, LIFO, and average cost. Objectives. of Goods Sold Credit Inventory Perpetual System Debit Inventory Credit Cash or Accounts Payable Cost of inventory on hand = Quantity × unit cost Computing the Cost of Inventory • Physical