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Student Version. Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information.

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Student Version

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  1. Student Version • Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information. • These PowerPoint slides have been modified from the lecture decks by making them fill-in-the-blank. Why? So that you get an opportunity to repeat a visual cue (from the lecture or the book) via completing text here. • In addition, most text book exhibits have been removed as they are available in your text directly.

  2. Inventories Chapter 7

  3. Learning Objective 1 Describe the importance of control over inventory.

  4. Control of _________ • Two primary objectives of _________ over inventory are: • _________________________________________ • _________________________________________

  5. Safeguarding Inventory • The _________ _________ authorizes the purchase of the _________ from an approved vendor.

  6. Safeguarding _________ • The _________ report establishes an _________ record of the _________ of the inventory.

  7. Safeguarding Inventory • Recording inventory using a _________ inventory system is also an _________ means of control. The amount of inventory is always _________ in the _________ _________ ledger.

  8. Safeguarding Inventory • Controls for safeguarding inventory should include _________ _________ to prevent damage and _________ or _________ theft. Some examples of security measures include the following: • _________________________________________. • _________________________________________. • _________________________________________.

  9. Reporting Inventory • A __________ inventory or count of inventory should be taken near _____-_______ to make sure that the ____________ of inventory reported in the financial statements is ____________ .

  10. Learning Objective 2 Describe three inventory cost flow assumptions and how they impact the income statement and balance sheet.

  11. Inventory Cost Flow Assumptions • Under the specific ____________ ____________ cost flow method, the ____________ sold is identified with a ____________ ____________ .

  12. Inventory Cost Flow Assumptions • Under the _____-___, ____-_______ (FIFO) inventory cost flow method, the ____________ units purchased are assumed to be ____________ ____________ and the ____________ inventory is made up of the ____________ ____________ purchases.

  13. Inventory Cost Flow Assumptions • Under the _____-__ , _____-______ (LIFO) ____________ cost flow method, the ____________ units purchased are assumed to be ____________ ____________ and the ____________ inventory is made up of the ____________ units purchased.

  14. Inventory Cost Flow Assumptions • Under the ____________ ____________ inventory cost flow method, the cost of the units sold and in ____________ inventory is a ____________ average of the ____________ costs.

  15. Learning Objective 3 Determine the cost of inventory under the perpetual inventory system, using the FIFO, LIFO, and weighted average cost methods.

  16. First-In, First-Out Method (continued)

  17. Weighted Average Cost Method • When the ____________ ____________ cost method is used in a perpetual system, an average cost for ____________ item is computed ____________ time a purchase is ____________ . • This unit cost is then used to determine the ____________ of each sale until another ____________ is made and a new ____________ is computed. This ____________ technique is called a ____________ ____________ .

  18. Weighted Average Cost Method

  19. Learning Objective 4 Determine the cost of inventory under the periodic inventory system, using the FIFO, LIFO, and weighted average cost methods.

  20. _____-_______, _____-_______ Method • Using FIFO, the ____________ batch purchased is considered the ____________ batch of merchandise ____________ . The physical flow does ____________ have to ____________ the accounting method chosen.

  21. _____-_______, _____-_______ Method • Using LIFO, the most recent batch purchased is considered the ____________ batch of merchandise ____________ . The actual flow of goods ______ ______ have to be LIFO. For example, _________________________________________________________________________________________________________________

  22. ____________ Average Cost Method • The _______ _________ cost method uses the weighted average unit ____________ for determining cost of merchandise ____________ and the ____________ merchandise inventory.

  23. Learning Objective 5 Compare and contrast the use of the three inventory costing methods.

  24. Comparing Inventory Cost Methods • Using the perpetual inventory system illustration with sales of $39,000 (1,300 units x $30), the differences in ending inventory, cost of merchandise sold, and gross profit are illustrated shown.

  25. Partial Income Statements

  26. Comparing Inventory Cost Methods • When the FIFO method is used during a period of inflation or _________ prices, FIFO will show a _________ profit than the other two inventory costing methods.

  27. Comparing Inventory Cost Methods • When the LIFO method is used during a period of inflation or _________ _________ , LIFO will show a _________ profit than the other two inventory costing methods. • During a period of _________ prices, using LIFO offers an _________ _________ savings compared to the other two inventory costing methods.

  28. Comparing Inventory Cost Methods • The weighted average cost method of inventory costing is a _________ between FIFO and LIFO. _________ _________ for the weighted average cost method is somewhere between the _________ _________ of LIFO and FIFO.

  29. Learning Objective 6 Describe and illustrate the reporting of merchandise inventory in the financial statements.

  30. _________ Merchandise Inventory • Cost is the primary basis for _________ and _________ inventories in the financial statements. However, inventory may be valued at other than cost in the following cases: • __________________________________________. • __________________________________________.

  31. Valuation at ______ of ______ or Market • Market, as used in ___- ___-___-____-______ method, is the cost to _________ the merchandise on the _________ date.

  32. Valuation at Lower of _______ or _________ • _________ and _________ cost can be determined for the following: • _______________________________________________. • _______________________________________________. • _______________________________________________.

  33. Valuation at Net ______ Value • Merchandise that is out of date, ______ , or ______ should be ______ ______ to its ______ ______ value. This is the estimated ______ price less any ______ costs of ______ , such as sales ______ or ______ advertising.

  34. Valuation at Net Realizable Value • Assume the following data about an item of damaged merchandise: • The merchandise should be valued at its net realizable value of $_____ ($_____ – $_____ ). Original cost $1,000 Estimated selling price 800 Selling expenses 150

  35. Merchandise Inventory on the Balance Sheet • Merchandise inventory is usually presented in the ________ ________ section of the balance sheet, following ________ .

  36. Inventory Errors • Some reasons that ________ ________ may occur include the following: • ______________________________________________. • ______________________________________________. • ______________________________________________. • ______________________________________________.

  37. Inventory Errors • Inventory errors often arise from _________ inventory. Manufacturer sometimes _________ merchandise to _________ who act as the _________ agent.

  38. Inventory Errors • The manufacturer, called the _________, retains title until the _________ are _________ . Such merchandise is said to be shipped on _________ to the retailer, called the _________ .

  39. Learning Objective 7 Describe and illustrate the inventory turnover and the number of days’ sales in inventory in analyzing the efficiency and effectiveness of inventory management.

  40. Inventory Turnover = Inventory Turnover • _________ _________ measures the relationship between _________ of _________ _________ and the amount of inventory carried during the _________ . It is calculated as follows:

  41. Number of Days’ Sales in Inventory = Inventory Turnover • The number of _________ _________ in inventory measures the _________ of _________ it takes to acquire, _________ , and _________ the inventory. It is computed as follows:

  42. Appendix Estimating Inventory Cost

  43. Retail _________ of Inventory Costing • The _________ inventory method of estimating inventory cost requires _________ and _________ prices to be maintained for the merchandise _________ for sale. • A ratio of _________ to _________ price is then used to convert _________ _________ at retail to _________ the _________ inventory cost.

  44. Gross Profit Method of Inventory Costing • The _________ _________ method uses the estimated _________ _________ for the period to _________ the inventory at the _________ of the period.

  45. Inventories The End

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