Inventories: Measurement8Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights

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Those assets that a company: 1. Intends to sell in the normal course of business. 2. Has in production (work in process) for future sale. 3. Uses currently in the production of goods to be sold (raw materials). 8-3 Types of Inventories Types of Inventory Merchandise Inventory Goods acquired for resale Manufacturing Inventory •Raw Materials •Work-in-Process •Finished Goods 1 .8-4 Inventory Cost Flows Raw Materials Work in Process Finished Goods

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Nội dung Text: Inventories: Measurement8Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights

Inventories: Measurement 8 Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 8-2 Inventory Those assets that a company: 1. Intends to sell in the normal course of business. 2. Has in production (work in process) for future sale. 3. Uses currently in the production of goods to be sold (raw materials). 8-3 Types of Inventories Types of Inventory Merchandise Manufacturing Inventory Inventory Goods acquired for •Raw Materials resale •Work-in-Process •Finished Goods 1
8-4 Inventory Cost Flows Raw Finished Work in Materials Goods Process $XX (4) $XX $XX (7) (1) $XX $XX $XX (8) Direct Labor Cost of Good (2) $XX $XX (5) Sold Manufacturing $XX Overhead (3) $XX $XX (6) (1) Raw materials purchased (2) Direct labor incurred (3) Manufacturing overhead incurred (4) Raw materials used (5) Direct labor applied (6) Manufacturing overhead applied (7) Work in process transferred to finished goods (8) Finished goods sold 8-5 Learning Objective Explain the difference between a perpetual inventory system and a periodic inventory system. 8-6 Inventory Methods Two accounting systems are used to record transactions involving inventory: Perpetual Periodic Inventory Inventory System System The inventory The inventory account is account is continuously adjusted at the end updated as of a reporting purchases and cycle. sales are made. 2
8-7 Perpetual Inventory System Matrix, Inc. purchases on account $600,000 of merchandise for resale to customers. GENERAL JOURNAL Date Description Debit Credit 600,000 2006 Inventory Accounts Payable 600,000 Returns of inventory are credited to the inventory account. Discounts on inventory purchases can be recorded using the gross or net method. 8-8 Perpetual Inventory System Matrix, Inc. sold, on account, inventory with a retail price of $820,000 and a cost basis of $540,000, to a customer. GENERAL JOURNAL Date Description Debit Credit Accounts Receivable 820,000 2006 820,000 Sales Cost of Goods Sold 540,000 540,000 Inventory 8-9 Periodic Cost of Goods Sold Equation Beginning Inventory + Net Purchases Cost of Goods Available for Sale - Ending Inventory = Cost of Goods Sold 3
8-10 Periodic Inventory System Matrix, Inc. purchases on account $600,000 of merchandise for resale to customers. GENERAL JOURNAL Date Description Debit Credit 600,000 2006 Purchases Accounts Payable 600,000 Returns of inventory are credited to the Purchase Returns and Purchase Allowances account. Discounts on inventory purchases can be recorded using the gross or net method. 8-11 Periodic Inventory System Matrix, Inc. sold on account, inventory with a retail price of $820,000 and a cost basis of $540,000, to a customer. GENERAL JOURNAL Date Description Debit Credit Accounts Receivable 820,000 2006 820,000 Sales No entry is made to record Cost of Good Sold. Assuming Beginning Inventory of $120,000. A physical count of Ending Inventory shows a balance of $180,000. Let’s calculate Cost of Goods Sold at the end of the accounting period. 8-12 Periodic Inventory System Calculation of Cost of Goods Sold Beginning inventory $ 120,000 Plus: Purchases 600,000 Cost of goods available for sale 720,000 Less: Ending inventory (180,000) Cost of goods sold $ 540,000 Adjusting entry to determine Cost of Goods Sold Date Description Debit Credit 12/31/06 Cost of goods sold 540,000 Inventory (ending) 180,000 Inventory (beginning) 120,000 Purchases 600,000 4
8-13 Comparison of Inventory Systems Transaction or Periodic Perpetual Event Inventory Inventory Routine purchases of Costs debited to Costs debited to various inventory items purchases account inventory account Debit Cost of goods No accounting Sale of inventory sold and credit entries made inventory Physical count of No separate End-of-period inventory to determination of cost accounting entries and determine cost of of goods sold related activities good sold necessary 8-14 Learning Objective Explain which physical quantities of goods should be included in inventory. 8-15 What is Included in Inventory? General Rule All goods owned by the company on the inventory date, regardless of their location. Goods in Transit Goods on Consignment Depends on FOB shipping terms. 5
8-16 Learning Objective Determine the expenditures that should be included in the cost of inventory. 8-17 Expenditures Included in Inventory Invoice Purchase Price Returns + Freight-in Freight in Purchase on Discounts Purchases Purchases 8-18 Purchase Discounts Gross Method Date Description Debit Credit Discount terms 10/5/06 Purchases 20,000 are 2/10, n/30. Accounts payable 20,000 $14,000 x 0.02 10/14/06 Accounts payable 14,000 Purchase discounts 280 $ 280 Cash 13,720 Partial payment not 11/4/06 Accounts payable 6,000 made within the Cash 6,000 Net Method discount period 10/5/06 Purchases 19,600 Accounts payable 19,600 10/14/06 Accounts payable 13,720 Cash 13,720 11/4/06 Accounts payable 5,880 Interest expense 120 Cash 6,000 6
8-19 Net Method Using Perpetual and Periodic Matrix, Inc. purchased on account $6,000 of merchandise for resale to customers. The merchandise was purchased subject to a cash discount of 2/10, n/30. The company incurred $160 in freight-in on the merchandise. Upon inspection, the company found that $200 of merchandise was damaged and the seller agreed to accept the merchandise return and credit the account of the company. The inventory was sold for $8,300 on account. Let’s look at the journal entries under both the perpetual and periodic accounting system assuming Matrix uses the net method to record merchandise purchases. 8-20 Net Method Using Perpetual and Periodic Perpetual Inventory Method Description Debit Credit Inventory 5,880 Accounts payable 5,880 Inventory 160 Cash 160 Accounts payable 200 Inventory 200 Accounts receivable 8,300 Sales revenue 8,300 Cost of goods sold 5,840 Inventory 5,840 Periodic Inventory Method Beginning inventory $ - Purchases 5,880 Purchases $ 5,880 Accounts payable 5,880 Less: Returns (200) Freight-in 160 Plus: Freight-in 160 Cash 160 Net purchases 5,840 Cost of goods available for sale 5,840 Accounts payable 200 Less: Ending inventory - Purchase returns 200 Cost of goods sold $ 5,840 Accounts receivable 8,300 Sales revenue 8,300 8-21 Learning Objective Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold. 7
8-22 Inventory Cost Flow Methods Specific cost identification p Average cost p First-in, first-out (FIFO) p Last-in, first-out (LIFO) p 8-23 Specific Cost Identification Items are added to The specific cost of p p inventory at cost when each inventory item they are purchased. must be known. COGS for each sale is By selecting specific p p based on the specific items from inventory cost of the item sold. at the time of sale, income can be manipulated. 8-24 Average Cost Method Periodic average cost uses a weighted-average unit cost: Cost of Weighted- Quantity goods average = ÷ available for available for unit cost sale sale Perpetual average cost uses a moving average unit cost that is recomputed each time a new purchase is made. 8
8-25 Weighted-Average Periodic System The following schedule shows the frame inventory for Yore Frame, Inc. for September. The physical inventory count at September 30 shows 600 frames in ending inventory. Use the periodic weighted-average method to weighted- determine: (1) Ending inventory cost. (2) Cost of goods sold. 8-26 Weighted-Average Periodic System Yore Frame, Inc. Frame Inventory Date Units $/Unit Total Beg. Inventory 800 $ 22.00 $ 17,600.00 9/3 300 24.00 7,200.00 9/15 250 25.00 6,250.00 9/21 200 27.00 5,400.00 9/29 400 28.00 11,200.00 Goods Available for Sale 1,950 $ 47,650.00 Ending Inventory 600 ? Cost of Goods Sold 1,350 ? 8-27 Weighted-Average Periodic System Now, we have to assign costs to ending inventory and cost of goods sold. Ending Inventory (600 units) Beginning Beginning Inventory Available (800 units) for Sale Purchases (1,950 units) (1,150 units) Goods Sold (1,350) $47,650 ÷ 1,950 = $24.4359 weighted- average per unit cost 9
8-28 Weighted-Average Periodic System Yore Frame, Inc. Frame Inventory Date Units $/Unit Total Beg. Inventory 800 $ 22.00 $ 17,600.00 9/3 300 24.00 7,200.00 9/15 250 25.00 6,250.00 9/21 200 27.00 5,400.00 9/29 400 28.00 11,200.00 Goods Available for Sale 1,950 $ 47,650.00 Ending Inventory 600 24.4359 14,661.54 Cost of Goods Sold 1,350 24.4359 $ 32,988.46 8-29 Moving-Average Perpetual System The following schedule shows the Frame inventory for Yore Frame, Inc. for September. The physical inventory count at September 30 shows 600 frames in ending inventory. Use the perpetual weighted-average method to weighted- determine: (1) Ending inventory cost. (2) Cost of goods sold. 8-30 Moving-Average Perpetual System Yore Frame, Inc. Frame Inventory Date Units $/Unit Total Beg. Inventory 800 $ 22.00 $ 17,600.00 9/3 300 24.00 7,200.00 9/15 250 25.00 6,250.00 9/21 200 27.00 5,400.00 9/29 400 28.00 11,200.00 Goods Available for Date Sales Units Sale 1,950 9/1 600 Ending Inventory 600 9/10 300 Cost of Goods Sold 1,350 9/30 450 10
8-31 Moving-Average Perpetual System Date Purchased Sold Balance Beg. Inv. 800 x 22.00 = 17,600 $ 17,600.00 1-Sep 600 x 22.000 = 13,200.00 4,400.00 8-32 Moving-Average Perpetual System Date Purchased Sold Balance Beg. Inv. 800 x 22.00 = 17,600 $ 17,600.00 1-Sep 600 x 22.000 = 13,200.00 4,400.00 3-Sep 300 x 24.00 = 7,200 11,600.00 10-Sep 300 x 23.200 = 6,960.00 4,640.00 $11,600.00 ÷ (800-600+300) = $23.200 8-33 Moving-Average Perpetual System Date Purchased Sold Balance Beg. Inv. 800 x 22.00 = 17,600 $ 17,600.00 1-Sep 600 x 22.000 = 13,200.00 4,400.00 3-Sep 300 x 24.00 = 7,200 11,600.00 10-Sep 300 x 23.200 = 6,960.00 4,640.00 15-Sep 250 x 25.00 = 6,250 10,890.00 21-Sep 200 x 27.00 = 5,400 16,290.00 29-Sep 400 x 28.00 = 11,200 27,490.00 30-Sep 450 x 26.181 = 11,781.45 15,708.55 $27,490.00 ÷ (800-600+300-300+250+200+400) = $26.181 11
8-34 Moving-Average Perpetual System Date Purchased Sold Balance Beg. Inv. 800 x 22.00 = 17,600 $ 17,600.00 1-Sep 600 x 22.000 = 13,200.00 4,400.00 3-Sep 300 x 24.00 = 7,200 11,600.00 10-Sep 300 x 23.200 = 6,960.00 4,640.00 15-Sep 250 x 25.00 = 6,250 10,890.00 21-Sep 200 x 27.00 = 5,400 16,290.00 29-Sep 400 x 28.00 = 11,200 27,490.00 30-Sep 450 x 26.181 = 11,781.45 15,708.55 Cost of Goods Sold in Septembe r Sale Date Units Cost/Unit Total Sum 9/1 600 22.000 $ 13,200.00 9/10 300 23.200 6,960.00 9/30 450 26.181 11,781.45 Total 1,350 31,941.45 8-35 First-In, First-Out p The cost of the oldest The FIFO inventory items are method charged to COGS assumes that when goods are sold. items are sold in the p The cost of the chronological newest inventory order of their items remain in acquisition. ending inventory. 8-36 First-In, First-Out Even though the periodic and the perpetual approaches differ in the timing of adjustments to inventory . . . . . . COGS and Ending Inventory Cost are the same under both approaches. 12
8-37 FIFO - Periodic System The following schedule shows the frame inventory for Yore Frame, Inc. for September. The physical inventory count at September 30 shows 600 frames in ending inventory. Use the periodic FIFO method to determine: (1) Ending inventory cost. (2) Cost of goods sold. 8-38 FIFO - Periodic System Yore Frame, Inc. Frame Inventory Date Units $/Unit Total Beg. Inventory 800 $ 22.00 $ 17,600.00 9/3 300 24.00 7,200.00 9/15 250 25.00 6,250.00 9/21 200 27.00 5,400.00 9/29 400 28.00 11,200.00 Goods Available for These are 47,650.00 $ the 600 Sale 1,950 most recently Ending Inventory 600 acquired units. Cost of Goods Sold 1,350 8-39 FIFO - Periodic System Yore Yore Frame, Inc. Frame Inventory Date Units $/Unit Total Beg. Inventory 800 $ 22.00 $ 17,600.00 9/3 300 24.00 7,200.00 9/15 250 25.00 6,250.00 9/21 200 27.00 5,400.00 9/29 400 28.00 11,200.00 Goods Available for Sale 1,950 $ 47,650.00 Ending Inventory 600 16,600.00 Cost of Goods Sold 1,350 13
8-40 FIFO - Periodic System Yore Frame, Inc. Frame Inventory Date Units $/Unit Total Beg. Inventory 800 $ 22.00 $ 17,600.00 9/3 300 24.00 7,200.00 9/15 250 25.00 6,250.00 9/21 200 27.00 5,400.00 9/29 400 28.00 11,200.00 Goods Available for These are the first Sale 1,950 $ 47,650.00 1,350 units Ending Inventory 600 16,600.00 acquired. Cost of Goods Sold 1,350 8-41 FIFO - Periodic System Yore Yore Frame, Inc. Frame Inventory Date Units $/Unit Total Beg. Inventory 800 $ 22.00 $ 17,600.00 9/3 300 24.00 7,200.00 9/15 250 25.00 6,250.00 9/21 200 27.00 5,400.00 9/29 400 28.00 11,200.00 Goods Available for Sale 1,950 $ 47,650.00 Ending Inventory 600 16,600.00 Cost of Goods Sold 1,350 $ 31,050.00 8-42 FIFO - Perpetual System The following schedule shows the frame inventory for Yore Frame, Inc. for September. The physical inventory count at September 30 shows 600 frames in ending inventory. Use the perpetual FIFO method to determine: (1) Ending inventory cost. (2) Cost of goods sold. 14
8-43 FIFO - Perpetual System Yore Frame, Inc. Frame Inventory Date Units $/Unit Total Beg. Inventory 800 $ 22.00 $ 17,600.00 9/3 300 24.00 7,200.00 9/15 250 25.00 6,250.00 9/21 200 27.00 5,400.00 9/29 400 28.00 11,200.00 Goods Available for Date Sales Units Sale 1,950 9/1 600 Ending Inventory 600 9/10 300 Cost of Goods Sold 1,350 9/30 450 8-44 FIFO - Perpetual System Date P urchased Sold Balance 200 Beg. Inv. 800 x 22.00 = 17,600 $ 17,600.00 1-Sep 600 x 22.00 = 13,200.00 4,400.00 The ending inventory on 9/1 consists of: 200 units from beginning inventory @ $22.00 $22. 8-45 FIFO - Perpetual System Date P urchased Sold Balance 200 Beg. Inv. 800 x 22.00 = 17,600 $ 17,600.00 1-Sep 600 x 22.00 = 13,200.00 4,400.00 3-Sep 300 x 24.00 = 7,200 11,600.00 The ending inventory on 9/3 consists of: 200 units from beginning inventory @ $22.00 $22. 300 units from the 9/3 purchase @ $24.00 $24. 15
8-46 FIFO - Perpetual System Date P urchased Sold Balance Beg. Inv. 800 x 22.00 = 17,600 $ 17,600.00 1-Sep 600 x 22.00 = 13,200.00 4,400.00 200300 x 24.00 = 3-Sep 7,200 11,600.00 10-Sep (remaining from Beg. Inv) 200 x 22.00 = 4,400.00 7,200.00 (from the 9/3 layer) 100 x 24.00 = 2,400.00 4,800.00 The ending inventory on 9/10 consists of: 200 units from the 9/3 purchase @ $24.00 $24. 8-47 FIFO - Perpetual System Date Balance P urchased Sold Beg. Inv. 800 x 22.00 = 17,600 $ 17,600.00 1-Sep 600 x 22.00 = 13,200.00 4,400.00 200300 x 24.00 = 3-Sep 7,200 11,600.00 10-Sep (remaining from Beg. Inv) 200 x 22.00 = 4,400.00 7,200.00 (from the 9/3 layer) 100 x 24.00 = 2,400.00 4,800.00 15-Sep 250 x 25.00 = 6,250 11,050.00 The ending inventory on 9/15 consists of: 200 units from the 9/3 purchase @ $24.00 $24. 250 units from the 9/15 purchase @ $25.00 $25. 8-48 FIFO - Perpetual System Date Balance P urchased Sold Beg. Inv. 800 x 22.00 = 17,600 $ 17,600.00 1-Sep 600 x 22.00 = 13,200.00 4,400.00 200300 x 24.00 = 3-Sep 7,200 11,600.00 10-Sep (remaining from Beg. Inv) 200 x 22.00 = 4,400.00 7,200.00 (from the 9/3 layer) 100 x 24.00 = 2,400.00 4,800.00 15-Sep 250 x 25.00 = 6,250 11,050.00 21-Sep 200 x 27.00 = 5,400 16,450.00 The ending inventory on 9/21 consists of: 200 units from the 9/3 purchase @ $24.00 $24. 250 units from the 9/15 purchase @ $25.00 $25. 200 units from the 9/21 purchase @ $27.00 $27. 16
8-49 FIFO - Perpetual System Date Balance P urchased Sold Beg. Inv. 800 x 22.00 = 17,600 $ 17,600.00 1-Sep 600 x 22.00 = 13,200.00 4,400.00 200300 x 24.00 = 3-Sep 7,200 11,600.00 10-Sep (remaining from Beg. Inv) 200 x 22.00 = 4,400.00 7,200.00 (from the 9/3 layer) 100 x 24.00 = 2,400.00 4,800.00 15-Sep 250 x 25.00 = 6,250 11,050.00 21-Sep 200 x 27.00 = 5,400 16,450.00 29-Sep 400 x 28.00 = 11,200 27,650.00 The ending inventory on 9/29 consists of: 200 units from the 9/3 purchase @ $24.00 $24. 250 units from the 9/15 purchase @ $25.00 $25. 200 units from the 9/21 purchase @ $27.00 $27. 400 units from the 9/29 purchase @ $28.00 $28. 8-50 FIFO - Perpetual System Date Balance P urchased Sold Beg. Inv. 800 x 22.00 = 17,600 $ 17,600.00 1-Sep 600 x 22.00 = 13,200.00 4,400.00 3-Sep 300 x 24.00 = 7,200 11,600.00 10-Sep (remaining from Beg. Inv) 200 x 22.00 = 4,400.00 7,200.00 (from the 9/3 layer) 100 x 24.00 = 2,400.00 4,800.00 15-Sep 250 x 25.00 = 6,250 11,050.00 21-Sep 200 x 27.00 = 5,400 16,450.00 29-Sep 400 x 28.00 = 11,200 27,650.00 30-Sep (remaining from 9/3 layer) 200 x 24.00 = 4,800.00 22,850.00 (from the 9/15 layer) 250 x 25.00 = 6,250.00 16,600.00 The ending inventory on 9/30 consists of: Cost of Goods Sold = 31,050.00 200 units from the 9/21 purchase @ $27.00 $27. 400 units from the 9/29 purchase @ $28.00. $28.00. 8-51 FIFO - Perpetual System Date Balance P urchased Sold Beg. Inv. 800 x 22.00 = 17,600 $ 17,600.00 1-Sep 600 x 22.00 = 13,200.00 4,400.00 3-Sep 300 x 24.00 = 7,200 11,600.00 10-Sep (remaining from Beg. Inv) 200 x 22.00 = 4,400.00 7,200.00 (from the 9/3 layer) 100 x 24.00 = 2,400.00 4,800.00 15-Sep 250 x 25.00 = 6,250 11,050.00 21-Sep 200 x 27.00 = 5,400 16,450.00 29-Sep 400 x 28.00 = 11,200 27,650.00 30-Sep (remaining from 9/3 layer) 200 x 24.00 = 4,800.00 22,850.00 (from the 9/15 layer) 250 x 25.00 = 6,250.00 16,600.00 Cost of Goods Sold = 31,050.00 Note that this is the same COGS computed using the Periodic approach. 17
8-52 Last-In, First-Out Any questions before we run into LIFO? 8-53 Last-In, First-Out p The cost of the The LIFO newest inventory method items are charged to assumes that COGS when goods the newest are sold. items are sold first, leaving the p The cost of the oldest older units in inventory items inventory. remain in inventory. 8-54 Last-In, First-Out Unlike FIFO, using the LIFO method may result in COGS and Ending Inventory Cost that differ under the periodic and perpetual approaches. 18
8-55 LIFO - Periodic System The following schedule shows the frame inventory for Yore Frame, Inc. for September. The physical inventory count at September 30 shows 600 frames in ending inventory. Use the periodic LIFO method to determine: (1) Ending inventory cost. (2) Cost of goods sold. 8-56 LIFO - Periodic System Yore Frame, Inc. Frame Inventory Date Units $/Unit Total Beg. Inventory 800 $ 22.00 $ 17,600.00 9/3 300 24.00 7,200.00 9/15 250 25.00 6,250.00 9/21 200 27.00 5,400.00 9/29 400 28.00 11,200.00 Goods Available for These are 47,650.00 $ the 600 Sale 1,950 oldest units in Ending Inventory 600 inventory. Cost of Goods Sold 1,350 8-57 LIFO - Periodic System Yore Frame, Inc. Frame Inventory Date Units $/Unit Total 200 $ 22.00 Beg. Inventory 800 $ 17,600.00 9/3 300 24.00 7,200.00 9/15 250 25.00 6,250.00 9/21 200 27.00 5,400.00 9/29 400 28.00 11,200.00 Goods Available for Sale 1,950 $ 47,650.00 600 x $22.00 Ending Inventory 600 13,200.00 Cost of Goods Sold 1,350 19
8-58 LIFO - Periodic System Yore Frame, Inc. Frame Inventory Date Units $/Unit Total 200 $ 22.00 Beg. Inventory 800 $ 17,600.00 9/3 300 24.00 7,200.00 9/15 250 25.00 6,250.00 9/21 200 27.00 5,400.00 9/29 400 28.00 11,200.00 Goods Available for These are the Sale 1,950 $ 47,650.00 most recently 600 x $22.00 Ending Inventory 600 13,200.00 acquired 1,350 Cost of Goods Sold 1,350 units. 8-59 LIFO - Periodic System Yore Frame, Inc. Frame Inventory Date Units $/Unit Total 200 $ 22.00 Beg. Inventory 800 $ 17,600.00 9/3 300 24.00 7,200.00 9/15 250 25.00 6,250.00 9/21 200 27.00 5,400.00 9/29 400 28.00 11,200.00 Goods Available for Sale 1,950 $ 47,650.00 Ending Inventory 600 13,200.00 Cost of Goods Sold 1,350 $4,400 + $30,050 $ 34,450.00 8-60 LIFO - Perpetual System The following schedule shows the frame inventory for Yore Frame, Inc. for September. The physical inventory count at September 30 shows 600 frames in ending inventory. Use the perpetual LIFO method to determine: (1) Ending inventory cost. (2) Cost of goods sold. 20