Scribd
Upload
36 views

Merchandise Inventory System and Costing

The document compares perpetual and periodic inventory systems. A perpetual system continuously tracks inventory changes while a periodic system only determines inventory quantities periodically, usually through an annual physical count. Under a perpetual system, purchases are debited to inventory while a periodic system debits purchases to the purchases account. Cost of goods sold is recorded at time of sale under perpetual but is a residual under periodic.

Uploaded by

Jade Piel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
36 views

Merchandise Inventory System and Costing

The document compares perpetual and periodic inventory systems. A perpetual system continuously tracks inventory changes while a periodic system only determines inventory quantities periodically, usually through an annual physical count. Under a perpetual system, purchases are debited to inventory while a periodic system debits purchases to the purchases account. Cost of goods sold is recorded at time of sale under perpetual but is a residual under periodic.

Uploaded by

Jade Piel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 13

MERCHANDISE INVENTORY

Perpetual vs. Periodic Inventory System


Perpetual Periodic
Continuously track changes in the inventory Determines the quantity of inventory on hand
account only periodically.
1. Purchases of merchandise for resale are debited 1. Purchases of merchandise for resale are debited
to Merchandise Inventory rather than to Purchases. to Purchases.
2. Freight-in is debited to Inventory; Purchase 2. Freight-in and Purchase Returns and allowances
Returns and allowances are credited to Inventory. are maintained in a separate account.
3. Cost of Goods Sold is recorded at the time of 3. The Cost of Goods Sold is a residual amount that
each sale and credited to Inventory. depends on a physical count of ending inventory
done at least once a year..
4. A subsidiary ledger of individual inventory
records is maintained as a control measure.
The subsidiary records show the quantity and
cost of each type of inventory on hand.
COST OF GOODS SOLD:

Inventory, beginning xxx


Add Net Purchases:
Purchases xxx
+ Freight-in xxx
- Purchase Discount (xxx)
- Purchase Returns and
Allowances (xxx) xxx
Goods available for sale xxx
Less Inventory, end xxx
Cost of Goods Sold xxx
• Cost per unit = Purchase price – Purchase discounts –
Purchase returns + Freight in
• Ending inventory = No. of units on hand x Unit cost
• Cost of goods sold = No. of units sold x Unit cost
Goods included in inventory
Goods/merchandise in transit
FOB Destination – ownership of the goods/merchandise is transferred
to the buyer when the goods are received at destination point.
FOB Shipping point – ownership of the goods/merchandise is
transferred as soon as when the supplier delivers the good to the
carrier for shipping/transport.
Consigned goods – ownership of the goods/merchandise
remains with the consignor.
Accounting Principles and Inventories
• Consistency Principle - The consistency principle states that
businesses should use the same accounting methods from
period to period.
• Disclosure Principle - The disclosure principle holds that a
company should report enough information for outsiders to
make wise decisions about the company.
• Materiality Concept - The materiality concept states that a
company must perform strictly proper accounting only for
significant items.
• Accounting Conservatism - Conservatism in accounting
means exercising caution in reporting items in the financial
statements. Conservatism says,
“Anticipate no gains, but provide for all probable losses.”
“If in doubt, record an asset at the lowest reasonable
amount and a liability at the highest reasonable amount.”
“When there’s a question, record an expense rather than
an asset.”
“When you are faced with a decision between two options,
you must choose the option that undervalues, rather than
overvalues, your business.”
The goal of conservatism is to report realistic figures.
01 02 03 04
Specific unit First-in, first- Last-in, first- Average cost
cost out (FIFO) cost out (LIFO) cost

Inventory Costing Methods


Specific unit cost

Also called the specific-identification method.

This method uses the specific cost of each unit of inventory to


determine ending inventory and to determine cost of goods sold.

In this method, the company knows exactly which item was sold
and exactly what the item cost.
Under this method, the cost of
goods sold is based on the
First-in, oldest purchases.
first-out
(FIFO) cost

That is, companies sell their


oldest inventory first.
Last-in, first-out (LIFO) cost

The opposite of FIFO.

Under this method, the cost of goods sold is based on the


most recent purchases (new costs)

That is, companies sell their newest inventory first.


Under this method, the business
computes a new average cost
per unit after each purchase.

Ending inventory and cost of


Average cost goods sold are then based on
the same average cost per unit.

An average price is calculated


and applied to all goods.
School Supplies Company              

Inventory Record  
   

Item: Stationery  
   
  Purchases Cost of Goods Sold Inventory on Hand

Date Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   

You might also like