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Topic 6. Inventories PowerPoint presentation by AFSH University Putra Malaysia. Learning Objectives. Define the meaning of inventory. Identify the different classification of inventory. Explain the importance of inventory. Discuss the relevant internal control of inventory.
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Topic 6 Inventories PowerPoint presentation by AFSH University Putra Malaysia
Learning Objectives • Define the meaning of inventory. • Identify the different classification of inventory. • Explain the importance of inventory. • Discuss the relevant internal control of inventory.
Inventory Definition MASB 2 defines inventories as assets: • Held for sale in the ordinary course of business; • In the process of production for such sale; or • In the form of materials or supplies to be consumed in the production process or in the rendering of services
Inventory Classification • Merchandise enterprise • merchandise inventory ready for sale • Manufacturing enterprise • May or may not be ready for sale i.e. raw materials, work in process and finished goods
The Importance of Inventory • Vital in the calculation of profit or lossInventory item is required to calculate COGS • Inventory item will be reported in Balance sheet usually the most significant current assets • Inventory amount should be control to avoid from being stolen; minimize loss • Inventory turnover must be active the faster the turnover, the higher the profit
Merchandising Operations • Merchandising businesses buy and resell inventory. • Revenues are referred to as sales revenue. • Expenses are divided into two categories: • Cost of goods sold • Operating expenses
Relevant Internal Control: • Segregation of duties • counting should be done by employee who do not have custodial responsibility for the inventory • Counting should be performed for both periodic and perpetual inventory system • Independent internal verification there should be a second count by other employee
Relevant Internal Control: • Documentation procedure pre-numbered inventory tags should be used and all inventory tags should be accounted for • Independent internal verification supervisor should ascertain that all inventory items are tagged and that no items have more than one tag