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1、8-1PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPACopyright 2012 The McGraw-Hill Companies, Inc.McGraw-Hill/IrwinInventories and the Cost of Inventories and the Cost of Goods SoldGoods SoldChapter 88
2、-2INCOME STATEMENTRevenueCost of goods soldGross profitExpensesNet incomeas goods are soldBALANCE SHEETAssetInventoryPurchase costs (or manufacturing costs)The Flow of Inventory CostsThe Flow of Inventory Costs8-3In a perpetual inventory system, inventory entries parallel the flow of costs.The Flow
3、of Inventory CostsThe Flow of Inventory Costs8-4When identical units of inventory have different unit costs, a question naturally arises as to which of these costs should be used in recording a sale of inventory.Which Unit Did We Sell? Which Unit Did We Sell? 8-5Inventory Subsidiary LedgerInventory
4、Subsidiary LedgerA separate subsidiary account is maintained for each item in inventory.8-6The Bike Company (TBC)Data for an IllustrationData for an Illustration8-7On August 14, TBC sold 20 bikes for $130 each. Of the bikes sold 9 originally cost $91 and 11 cost $106.Specific Identification Specific
5、 IdentificationThe Cost of Goods Sold for the August 14 sale is $1,985. This leaves 5 units, with a total cost of $515, in inventory: 1 unit that costs $91 and 4 units that cost $106 each. 8-8Retail (20 $130)CostA similar entry is made after each sale.Specific Identification Specific Identification8
6、-9Additional purchases were made on August 17 and 28. Specific Identification Specific Identification8-10Balance SheetInventory = $1,395Income Statement COGS = $4,595Specific Identification Specific Identification8-11Average-Cost MethodAverage-Cost MethodThe average cost per unit must be computed pr
7、ior to each sale.On August 14, TBC sold 20 bikes for $130 each. On August 14, TBC sold 20 bikes for $130 each. $2,500 25 = $100 avg. cost8-12Average-Cost MethodAverage-Cost Method$114 = $3,990 35Additional purchases were made on August 17 and August 28. On August 31, an additional 23 units were sold
8、.8-13Income Statement COGS = $4,622Balance SheetInventory = $1,368Average-Cost MethodAverage-Cost Method8-14On August 14, TBC sold 20 bikes for $130 each. On August 14, TBC sold 20 bikes for $130 each. The Cost of Goods Sold for the August 14 sale is $1,970, leaving 5 units, with a total cost of $53
9、0, in inventory. First-In, First-Out Method (FIFO)First-In, First-Out Method (FIFO)8-15Additional purchases were made on Aug. 17 and Aug. 28. On August 31, an additional 23 units were sold.First-In, First-Out Method (FIFO)First-In, First-Out Method (FIFO)8-16First-In, First-Out Method (FIFO)First-In
10、, First-Out Method (FIFO)Balance SheetInventory = $1,420Income StatementCOGS = $4,5708-17On August 14, TBC sold 20 bikes for $130 each. Last-In, First-Out Method (LIFO)Last-In, First-Out Method (LIFO)The Cost of Goods Sold for the August 14 sale is $2,045, leaving 5 units, with a total cost of $455,
11、 in inventory. 8-18Last-In, First-Out Method (LIFO)Last-In, First-Out Method (LIFO)Additional purchases were made on Aug. 17 and Aug. 28. On Aug. 31, an additional 23 units were sold.8-19Balance SheetInventory = $1,260Last-In, First-Out Method (LIFO)Last-In, First-Out Method (LIFO)Income StatementCO
12、GS = $4,7308-208-21Once a company has adopted a particular accounting method, it should follow that method consistently rather than switch methods from one year to the next.The Principle of ConsistencyThe Principle of Consistency8-22The primary reason for taking a physical inventory is to adjust the
13、 perpetual inventory records for unrecorded shrinkage losses, such as theft, spoilage, or breakage.Taking a Physical InventoryTaking a Physical Inventory8-23Reduces the value of the inventory.ObsolescenceAdjust inventory value to the lower of historical cost or current replacement cost (market).Lowe
14、r of Cost or Market (LCM)LCM and Other Write-DownsLCM and Other Write-Downs of Inventoryof Inventory8-24LCM and Other Write-DownsLCM and Other Write-Downs of Inventoryof Inventory8-25Year EndA sale should be recorded when title to the merchandise passes to the buyer.F.O.B. shipping point title passe
15、s to buyer at the point of shipment.F.O.B. F.O.B. destination destination pointpoint title passes to buyer at the point of destination.Goods In TransitGoods In Transit8-26In a periodic inventory system, inventory entries are as follows.Note that an entry is not made to inventory.Periodic Inventory S
16、ystemsPeriodic Inventory Systems8-27In a periodic inventory system, inventory entries are as follows.Periodic Inventory SystemsPeriodic Inventory Systems8-28Information for the Following Information for the Following Inventory ExamplesInventory Examples8-29Cost of Goods Sold$9,725 - $6,400 = $3,325Specific IdentificationSpecific Identification8-30Avg. Cost $9,725 1,800 = $5.40278 Average-Cost MethodAverage-Cost Me
