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Chapter 8

สินค้าคงเหลือ (Merchandise Inventories). Chapter 8. INCOME MEASUREMENT MERCHANDISER. Less. Sales Revenue. Equals. Cost of Goods Sold. Less. Gross Profit. Equals. Net Income (Loss). Operating Expenses. Cash. Merchandise Inventory. OPERATING CYCLE COMPARISON.

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Chapter 8

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  1. สินค้าคงเหลือ (Merchandise Inventories) Chapter8

  2. INCOME MEASUREMENT MERCHANDISER Less Sales Revenue Equals Cost of Goods Sold Less Gross Profit Equals Net Income (Loss) Operating Expenses

  3. Cash Merchandise Inventory OPERATING CYCLE COMPARISON Service Company Receive Cash Perform Services Cash Accounts Receivable Merchandising Company Receive Cash Buy Inventory Sell Inventory Accounts Receivable

  4. รายการที่เกี่ยวข้องกับการซื้อ/ขายสินค้ารายการที่เกี่ยวข้องกับการซื้อ/ขายสินค้า • รายได้จากการขาย(Sales) • ส่วนลดการค้า (Trade Discount) • รับคืน(ส่งคืน)และส่วนลดที่ยอมให้ (Sales Returns and Allowance) • ส่วนลดเงินสด (Cash Discount) • ค่าขนส่งสินค้า (Transportation Costs) • ต้นทุนของสินค้า

  5. รายการที่เกี่ยวข้องกับการซื้อ/ขายสินค้ารายการที่เกี่ยวข้องกับการซื้อ/ขายสินค้า

  6. INVENTORY SYSTEMS PERPETUAL INVENTORY End of period No entry Inventory purchased Item sold SOLD Record purchase Record revenue & COGS PERIODIC INVENTORY Inventory purchased Item sold End of period Compute and record COGS SOLD Record purchase Record revenue only

  7. PURCHASE ENTRIES – PERPETUAL INVENTORY MERCHANDISE INVENTORY CASH Cash purchase COST COST A/P Credit purchase MERCHANDISE INVENTORY COST COST The purchase is normally recorded when the goods are received Credit purchases are normally supported by a purchase invoice

  8. 3800 3 800 3800 3800 PURCHASE ENTRIES – PERPETUAL INVENTORY Cash purchase Credit purchase

  9. PURCHASE RETURNS AND ALLOWANCES GENERAL JOURNAL Date Account Titles and Explanation Dr. Cr. 300 300 May 8 Accounts Payable Merchandise Inventory (To record return of inoperable goods received from Highpoint Electronic, DM No. 126) For purchases returns and allowances, Accounts Payableis debited and Merchandise Inventory is credited. Buyer Seller

  10. PURCHASE DISCOUNTS PAYMENT WITHIN DISCOUNT PERIOD Credit terms may permit the buyer to claim a cash discount for the prompt payment of a balance due. GENERAL JOURNAL Date Account Titles and Explanation Dr. Cr. 3,500 3,430 70 May 14 Accounts Payable Cash Merchandise Inventory (To record payment within discount period) If payment is made within the discount period, Merchandise inventoryis credited for the discount taken.

  11. PURCHASE DISCOUNTS PAYMENT AFTER DISCOUNT PERIOD GENERAL JOURNAL Date Account Titles and Explanation Debit Credit 3,500 3,500 June 3 Accounts Payable Cash (To record payment with no discount taken) If payment is made after the discount period, Accounts Payableis debited and Cash is credited for the full amount.

  12. SHIPPING TERMS – FREE ON BOARD

  13. ACCOUNTING FOR FREIGHT COSTS PAID BY BUYER GENERAL JOURNAL Date Account Titles and Explanation Dr. Cr. 150 150 May 6 Merchandise Inventory Cash (To record payment of freight, terms FOB shipping point) Freight costs are part of the cost of inventory purchased.

  14. ACCOUNTING FOR FREIGHT COSTS PAID BY SELLER GENERAL JOURNAL Date Account Titles and Explanation Dr. Cr. 150 150 May 4 Freight-out (Delivery Expense) Cash (To record payment of freight on goods sold FOB destination) Freight costs incurred by the seller are selling expenses called Freight-out.

  15. REVENUE ENTRIES – PERPETUAL INVENTORY Revenues are reported when earned in accordance with the revenue recognition principle. In a merchandising company, revenues are earned when the goods are transferred from seller to buyer. All sales should be supported by a cash register tape or sales invoice.

  16. REVENUE ENTRIES – PERPETUAL INVENTORY GENERAL JOURNAL Date Account Titles and Explanation Dr. Cr. May 4 Accounts Receivable 3,800 3,800 2,400 2,400 Sales (To record credit sales to Chelsea Video per invoice #731) Cost of Goods Sold Merchandise Inventory (To record cost of merchandise sold on invoice #731 to Chelsea Video) For cash sales, simply replace the debit to accounts receivable with a debit to cash.

  17. SALES RETURNS & ALLOWANCES SALES RETURN Customer returns goods to the seller for credit or a refund. SALES ALLOWANCE Seller allows a reduction in selling price. Goods are not returned. Seller prepares a CREDIT MEMORANDUM.

  18. GENERAL JOURNAL Date Account Titles and Explanation Dr. Cr. May 8 Sales Returns and Allowances Accounts Receivable (To record credit granted to Beyer Video, for returned goods) Merchandise Inventory Cost of Goods Sold RECORDING SALES RETURNS & ALLOWANCES 300 300 140 140 (To record cost of goods returned ) Sales Returns and Allowances is aCONTRA-REVENUEaccount. It’s normal balance is aDEBIT.

  19. SALES DISCOUNTS Seller offers customer a cash discount for prompt payment of balance due. Credit terms indicate the discount percent, Discount period, and final due date. 2/10, n/30 A 2% discount may be taken if payment is made within 10 days of the invoice date. 1/10 EOM A 1% discount is available if payment is made by the 10th of the next month.

  20. RECORDING SALES DISCOUNTS GENERAL JOURNAL Date Account Titles and Explanation Dr. Cr. 3,430 70 3,500 May 14 Cash Sales Discounts Accounts Receivable (To record collection within 2/10, n/30 discount period from Beyer Video) Sales discounts is a CONTRA-REVENUE ACCOUNT. It’s normal balance is aDEBIT.

  21. Computation of Net Sales

  22. MULTIPLE - STEP INCOME STATEMENT The multiple step income statement arrives at net income in stages. Sellers Electronix Income Statement The multiple step income statement also distinguished between operating and non-operating activities.

  23. PERPETUAL &PERIODIC

  24. PERPETUAL &PERIODIC

  25. COST OF GOODS SOLD—PERIODIC INVENTORY Sellers Electronix Cost of Goods Sold For the year ended December 31, 2006

  26. DETERMINING INVENTORY QUANTITIES At the balance sheet date, companies must determine how many units are on hand, and value those units. Two steps are required to achieve this: 1. Take a physical inventory count 2. Determine ownership of goods

  27. INTERNAL CONTROLS FOR PHYSICAL INVENTORY Proper internal control over inventory can be achieved by the implementing the following procedures:

  28. DETERMINING OWNERSHIP OF GOODS IN TRANSIT FOB Shipping Point FOB Destination Point Seller Seller Ownership passes to the buyer here Public Carrier Co. Public Carrier Co. Ownership passes to the buyer here Buyer Buyer

  29. DETERMINING OWNERSHIP OF CONSIGNED GOODS A consignment agreement transfers goods from a consignor to a consignee, who agrees to sell the goods. Consignor ผู้ฝากขาย Consignee ผู้รับฝากขาย Sale Consignee remits proceeds (less fee) to consignor when inventory is sold. Inventory on consignment is included in the consignor’s inventory until sold. Customer

  30. INVENTORY COSTING – PERIODIC SYSTEM Pool of Costs Cost of Goods Available for Sale Beginning inventory $ 20,000 Cost of goods purchased 100,000 Cost of goods available for sale $120,000 Step 1 Step 2 Ending Inventory Cost of Goods Sold Unit Total Cost of goods available for sale $120,000 Units Cost Cost Less: Ending inventory 15,000 5,000 $ 3.00 $15,000 Cost of goods sold $105,000

  31. การคำนวณต้นทุนของสินค้าคงเหลือการคำนวณต้นทุนของสินค้าคงเหลือ 1. วิธีราคาเจาะจง 2. วิธีเข้าก่อน-ออกก่อน 3. วิธีราคาทุนถัวเฉลี่ยถ่วงน้ำหนัก

  32. SPECIFIC IDENTIFICATION Tracks actual flow of goods. Each item marked with its unit cost. Inventory Purchases Cost of Goods Sold $1,500 Item 1 $700 SOLD Item #2 $750 1 Item #3 $800 SOLD

  33. ASSUMED COST FLOW METHODS These methods assume cost flows that may be unrelated to the actual physical flow of goods. FIFO LIFO AVERAGE COST These cost flow assumptions do not have to be consistent with the actual flow of goods.

  34. FIFO FIRST-IN, FIRST-OUT • Earliest goods purchased are the first to be sold. • Cost of earliest goods purchased are the first to be recognized as cost of goods sold. • Ending inventory consists of items purchased late in the year. FIFO ASSUMPTIONS

  35. ALLOCATION OF COSTS FIFO METHOD 12,000 Step 1 Step 2 Ending Inventory Cost of Goods Sold Unit Total Date Units Cost Cost 11/27 400 $ 13 $ 5,200 Cost of goods available for sale $ 12,000 08/24 50 12 600 Less: Ending inventory 5,800 450 $5,800 Cost of goods sold $6,200

  36. COGS PROOF FIFO METHOD 100 $ 10 $ 1,000 200 11 2,200 250 12 3,000 550 $ 6,200 The accuracy of the cost of goods sold can be verified by recognizing that the first units acquired are the first units sold. Unit Total Date Units Cost Cost 01/01 X = 04/15 X = 08/24 X = Total

  37. AVERAGE COST • Goods available for sale are homogeneous. • Cost of goods available for sale is allocated on the basis of the weighted average unit cost incurred. • The weighted average unit cost is applied to the units on hand to determine the cost of ending inventory. AVERAGE COST ASSUMPTIONS

  38. ALLOCATION OF COSTS AVERAGE COST $ 12,000 $ 5,400 $ 6,600 Step 1 Step 2 Ending Inventory Cost of Goods Sold $ 12,000 ÷ 1,000 = $12.00 Unit Total Cost of goods available for sale $ 12,000 Units Cost Cost Less: Ending inventory 5,400 450 x $ 12.00 = Cost of goods sold

  39. LOWER OF COST OR MARKET The inventory is written down to its market value. Market Value IF Cost When using LCM: Market value = Replacement cost

  40. VALUING INVENTORY AT LOWER OF COST OR MARKET $ 159,000 Lower of Cost or Cost Market Market Television sets Consoles $ 60,000 $ 55,000 $ 55,000 Portables 45,000 52,000 45,000 Total 105,000 107,000 Video equipment Recorders 48,000 45,000 45,000 Movies 15,000 14,000 14,000 Total 63,000 59,000 Total inventory $ 168,000 $ 166,000

  41. COST FLOWS—PERPETUAL INVENTORY The product data shown below for Bow Valley Electronics will be used to explain perpetual inventory costing using three assumed cost flow methods: FIFO AVERAGE COST Bow Valley Electronics Z202 Astro Condensers Unit Total Date Explanation Units Cost Cost 01/01 Beginning inventory 100 $10 $ 1,000 04/15 Purchase 200 11 2,200 08/24 Purchase 300 12 3,600 11/27 Purchase 400 13 5,200 Total $ 12,000

  42. PERPETUAL INVENTORY – FIFO Under FIFO,the cost of the earliest goods on hand prior to each sale is charged to cost of goods sold. Therefore, the cost of goods sold on September 10 consists of the units on hand January 1 and the units purchased April 15 and August 24. Date Purchases Sales Balance January 1 (100 @ $10) $1,000 April 15 (200 @ $11) $2,200 (100 @ $10) (200 @ $11) $3,200 August 24 (300 @ $12) $3,600 (100 @ $10) (200 @ $11) (300 @ $12) $6,800 September 10 (100 @ $10) (200 @ $11) $6,200 (50 @ $12) $600 (250 @ $12) November 27 (400 @ $13) $5,200 (50 @ $12) (400 @ $13) $5,800

  43. PERPETUAL INVENTORY – AVG COST • The average cost method in a perpetual inventory system is called the moving average method. • Under this method a new average is computed after each purchase. • The average cost is computed by dividing the cost of goods available for sale by the units on hand. • The average cost is then applied to: Average Cost x Units Sold = COGS Average Cost x Remaining Units = ENDING INVENTORY

  44. PERPETUAL INVENTORY – AVG COST A new average is computed each time a purchase is made. On April 15, after 200 units are purchased for $2,200, a total of 300 units costing $3,200 ($1,000 + $2,200) are on hand. The average cost is $10.667 ($3,200/300). Date Purchases Sales Balance January 1 (100 @ $10) $1,000 April 15 (200 @ $11) $2,200 (300 @ 10.667) $3,200 August 24 (300 @ $12) $3,600 (600 @ 11.333) $6,800 September 10 (550 @ 11,333) $6,233 (50 @ $11.333) $567 November 27 (400 @ $13) $5,200 (450 @ 12.816) $5,767

  45. INVENTORY DISCLOSURES Inventory is classified as a current asset in the balance sheet. COGS is subtracted from sales in the income statement. Notes to financial statements should include: • Major inventory classes (if not on balance sheet) • Basis of accounting (Cost or LCM) • Costing Method (FIFO, LIFO, AVERAGE COST)

  46. USE COST FLOW METHODS CONSISTENTLY • A company needs to use its chosen cost flow method consistently from one period to another. • Consistent application makes more comparable financial statements. • Changes in cost flow method should be disclosed in the financial statements.

  47. End of Chapter 8

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