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Inventories

0. 7. Inventories. 0. 7-2. Inventory Costing Methods. 10. 0. 7-2. (Continued). 11. 0. 7-2. (Continued). 12. 0. 7-2. (Concluded). 13. 0. 7-2. Inventory Costing Methods. 400 300 200 100 0. 371. 299. Number of firms (> $1B Sales). 130. FIFO. LIFO. Average cost. 14.

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Inventories

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  1. 0 7 Inventories

  2. 0 7-2 Inventory Costing Methods 10

  3. 0 7-2 (Continued) 11

  4. 0 7-2 (Continued) 12

  5. 0 7-2 (Concluded) 13

  6. 0 7-2 Inventory Costing Methods 400 300 200 100 0 371 299 Number of firms (> $1B Sales) 130 FIFO LIFO Average cost 14

  7. Example Exercise 7-1 0 7-2 - The three identical units of Item QBM are purchased during February, as shown below. Item QBMUnitsCost Feb. 8 Purchase 1 $ 45 15 Purchase 1 48 26 Purchase 1 51 Total 3 $144 Average cost per unit $48 ($144 ÷ 3 units) Assume that one unit is sold on February 27 for $70. Determine the gross profit for February and ending inventory on February 28 using (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) average cost methods. 15

  8. Item 127B Units Cost Jan. 1 Inventory 100 $20 0 7-3 FIFO Perpetual On January 1, the firm had 100 units of Item 127B that cost $20 per unit. 18

  9. Item 127B Units Cost Jan. 1 Inventory 100 $20 4 Sale 70 0 7-3 FIFO Perpetual On January 4, the firm sold 70 units of 127B at $30 each. 19

  10. 0 7-3 FIFO Perpetual On January 4, the firm sold 70 units of 127B at $30 each. 4 Accounts Receivable 2 100 00 Sales 2 100 00 On January 22, the firm sold twenty units at $30. 4 Cost of Merchandise Sold 1 400 00 Merchandise Inventory 1 400 00 20

  11. 0 7-3 FIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 21

  12. Item 127B Units Cost Jan. 1 Inventory 100 $20 4 Sale 70 10 Purchase 80 21 0 7-3 FIFO Perpetual On January 10, the firm purchased 80 units at $21 each. 22

  13. 0 7-3 FIFO Perpetual On January 10, the firm purchased 80 units at $21 each. 10 Merchandise Inventory 1 680 00 Accounts Payable 1 680 00 23

  14. 0 7-3 FIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 10 80 21 1,680 30 20 600 80 21 1,680 24

  15. Item 127B Units Cost Jan. 1 Inventory 100 $20 4 Sale 70 10 Purchase 80 21 22 Sale 40 0 7-3 FIFO Perpetual On January 22, the firm sold 40 units for $30 each. 25

  16. 0 7-3 FIFO Perpetual On January 22, the firm sold 40 units for $30 each. 22 Accounts Receivable 1 200 00 Sales 1 200 00 On January 22, the firm sold twenty units at $30. 22 Cost of Merchandise Sold 810 00 Merchandise Inventory 810 00 26

  17. Of the forty sold, thirty are considered to be from those acquired at $20 each. The other ten are considered to be from the January 10 purchase. 0 7-3 FIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 10 80 21 1,680 30 20 600 80 21 1,680 22 30 20 600 10 21 210 70 21 1,470 27

  18. Item 127B Units Cost Jan. 1 Inventory 100 $20 4 Sale 70 10 Purchase 80 21 22 Sale 40 28 Sale 20 0 7-3 FIFO Perpetual On January 28, the firm sold 20 units at $30 each. 28

  19. 0 7-3 FIFO Perpetual On January 28, the firm sold 20 units at $30 each. 28 Accounts Receivable 600 00 Sales 600 00 28 Cost of Merchandise Sold 420 00 Merchandise Inventory 420 00 29

  20. 0 7-3 FIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 10 80 21 1,680 30 20 600 80 21 1,680 22 30 20 600 10 21 210 70 21 1,470 28 20 21 420 50 21 1,050 30

  21. Item 127B Units Cost Jan. 1 Inventory 100 $20 4 Sale 70 10 Purchase 80 21 22 Sale 40 28 Sale 20 30 Purchase 100 22 0 7-3 FIFO Perpetual On January 30, purchased ten additional units of Item 127B at $22 each. 31

  22. 0 7-3 FIFO Perpetual On January 30, purchased ten additional units of Item 127B at $22 each. 30 Merchandise Inventory 2 200 00 Accounts Payable 2 200 00 32

  23. 0 7-3 FIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 10 80 21 1,680 30 20 600 80 21 1,680 22 30 20 600 10 21 210 70 21 1,470 28 20 21 420 50 21 1,050 30 100 22 2,200 50 21 1,050 100 22 2,200 33

  24. 0 7-3 FIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 10 80 21 1,680 30 20 600 80 21 1,680 22 30 20 600 10 21 210 70 21 1,470 28 20 21 420 50 21 1,050 30 100 22 2,200 50 21 1,050 100 22 2,200 Cost of merchandise sold for January is $2,630. 34

  25. 0 7-3 FIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 10 80 21 1,680 30 20 600 80 21 1,680 22 30 20 600 10 21 210 70 21 1,470 28 20 21 420 50 21 1,050 30 100 22 2,200 50 21 1,050 100 22 2,200 January 31, inventory is $3,250 ($1,050 + $2,200) 35

  26. Example Exercise 7-2 0 7-3 - Beginning inventory, purchases, and sales for Item ER27 are as follows: Nov. 1 Inventory 40 units at $5 5 Sale 32 units 11 Purchase 60 units at $7 21 Sale 45 units Assuming a perpetual inventory system and the first-in, first-out (FIFO) method, determine (a) the cost of the merchandise sold for the November 21 sale and (b) the inventory on November 30. 36

  27. 0 7-3 LIFO Perpetual On January 1, the firm had 100 units of Item 127B that cost $20 per unit. Item 127B Units Cost Jan. 1 Inventory 100 $20 38

  28. 0 7-3 LIFO Perpetual On January 4, the firm sold 70 units of 127B at $30 each. Item 127B Units Cost Jan. 1 Inventory 100 $20 4 Sale 70 39

  29. 0 7-3 LIFO Perpetual On January 4, the firm sold 70 units of 127B at $30 each. 4 Accounts Receivable 2 100 00 Sales 2 100 00 On January 22, the firm sold twenty units at $30. 4 Cost of Merchandise Sold 1 400 00 Merchandise Inventory 1 400 00 40

  30. 0 7-3 LIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 41

  31. 0 7-3 LIFO Perpetual On January 10, the firm purchased 80 units at $21 each. Item 127B Units Cost Jan. 1 Inventory 100 $20 4 Sale 70 10 Purchase 80 21 42

  32. 0 7-3 LIFO Perpetual On January 10, the firm purchased 80 units at $21 each. 10 Merchandise Inventory 1 680 00 Accounts Payable 1 680 00 43

  33. 0 7-3 LIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 10 80 21 1,680 30 20 600 80 21 1,680 44

  34. 0 7-3 LIFO Perpetual On January 22, the firm sold 40 units for $30 each. Item 127B Units Cost Jan. 1 Inventory 100 $20 4 Sale 70 10 Purchase 80 21 22 Sale 40 45

  35. 0 7-3 LIFO Perpetual On January 22, the firm sold 40 units for $30 each. 22 Accounts Receivable 1 200 00 Sales 1 200 00 On January 22, the firm sold twenty units at $30. 22 Cost of Merchandise Sold 840 00 Merchandise Inventory 840 00 46

  36. All of the 40 sold are considered to be from the January 10 purchase. 0 7-3 LIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 10 80 21 1,680 30 20 600 80 21 1,680 22 40 21 840 30 20 600 40 21 840 47

  37. Item 127B Units Cost Jan. 1 Inventory 100 $20 4 Sale 70 10 Purchase 80 21 22 Sale 40 28 Sale 20 0 7-3 LIFO Perpetual On January 28, the firm sold 20 units at $30 each. 48

  38. 0 7-3 LIFO Perpetual On January 28, the firm sold 20 units at $30 each. 28 Accounts Receivable 600 00 Sales 600 00 28 Cost of Merchandise Sold 420 00 Merchandise Inventory 420 00 49

  39. All of the 20 sold are considered to be from the January 22 purchase. 0 7-3 LIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 10 80 21 1,680 30 20 600 80 21 1,680 22 40 21 840 30 20 600 40 21 840 28 20 21 420 30 20 600 20 21 420 50

  40. 0 7-3 LIFO Perpetual On January 30, the firm purchased one hundred additional units of Item 127B at $22 each. Item 127B Units Cost Jan. 1 Inventory 100 $20 4 Sale 70 10 Purchase 80 21 22 Sale 40 28 Sale 20 30 Purchase 100 22 51

  41. 0 7-3 LIFO Perpetual On January 30, the firm purchased one hundred additional units of Item 127B at $22 each. 30 Merchandise Inventory 2 200 00 Accounts Payable 2 200 00 52

  42. 0 7-3 7-3 LIFO Perpetual LIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 10 80 21 1,680 30 20 600 80 21 1,680 22 40 21 840 30 20 600 40 21 840 28 20 21 420 30 20 600 20 21 420 30 100 22 2,200 30 20 600 20 21 420 100 22 2,200 33 53

  43. 0 7-3 7-3 LIFO Perpetual LIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 10 80 21 1,680 30 20 600 80 21 1,680 22 40 21 840 30 20 600 40 21 840 28 20 21 420 30 20 600 20 21 420 30 100 22 2,200 30 20 600 20 21 420 100 22 2,200 33 54 Cost of merchandise sold $2,660

  44. 0 7-3 7-3 LIFO Perpetual LIFO Perpetual Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 100 20 2,000 4 70 20 1,400 30 20 600 10 80 21 1,680 30 20 600 80 21 1,680 22 40 21 840 30 20 600 40 21 840 28 20 21 420 30 20 600 20 21 420 30 100 22 2,200 30 20 600 20 21 420 100 22 2,200 33 55 January 31, inventory….. $3,220

  45. Example Exercise 7-3 0 7-3 - Beginning inventory, purchases, and sales for Item ER27 are as follows: Nov. 1 Inventory 40 units at $5 5 Sale 32 units 11 Purchase 60 units at $7 21 Sale 45 units Assuming a perpetual inventory system and the last-in, first-out (LIFO) method, determine (a) the cost of the merchandise sold for the November 21 sale and (b) the inventory on November 30. 56

  46. 0 7-4 FIFO Periodic Using FIFO, the earliest batch purchased is considered the first batch of merchandise sold. The physical flow does not have to match the accounting method chosen.

  47. 280 units available for sale during year $5,880 Cost of merchandise available for sale 0 7-4 FIFO Periodic 100 units @ $20 = $2,000 Jan. 1 80 units @ $21 Jan. 10 = 1,680 100 units @ $22 Jan. 30 = 2,200 60

  48. 100 units @ $20 Jan. 1 80 units @ $21 Jan. 10 100 units @ $22 Jan. 30 Ending inventory $3,250 0 7-4 FIFO Periodic The physical count on January 31 shows that 150 units are on hand (conclusion: 130 units were sold). What is the cost of the ending inventory? Sold these = $ 0 Sold 30 of these = 1,050 50 units @ $21 100 units @ $22 = 2,200 61

  49. 0 7-4 FIFO Periodic Now we can calculate the cost of goods sold as follows: Beginning inventory, January 1 (Slide 60) $2,000 Purchases ($1,680 + $2,200) 3,880 Cost of merchandise available for sale $5,880 Ending inventory, January 31(Slide 61) 3,250 Cost of merchandise sold $2,630 62

  50. 0 7-4 LIFO Periodic Using LIFO, the most recent batch purchased is considered the first batch of merchandise sold. The actual flow of goods does not have to be LIFO. For example, a store selling fresh fish would want to sell the oldest fish first (which is FIFO) even though LIFO is used for accounting purposes.

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