Chapter 8Inventory Reporting.ppt

Intermediate Accounting, 10th Edition, Ch. 8 Kieso et al. Chapter 8Inventory Reporting Physical units to be accounted for: What is there AND Goods in transit FOB Destination Goods on consignment with consignee Goods sold under buy back agreements Goods sold with high rates of return if unable to estimate returns Installment sales if unable to estimate bad debts Report inventory units at the lower of cost or market conservatism . What is included in cost for: - Retail - Manufacturing: Purchases are debited to Inventory account Freight-in, Purch. Returns Allowances and Purch. Disc. are recorded in Inventory account. Debit COGS and credit Inventory account for each sale. Purchases are debited to Purchases account. Freight-in, Purch. R A and Purch. Disc. are recorded in their respective accounts. COGS is computed only periodically: COGA – EI COGS Inventory System - Perpetual Purchase of Inventory: Dr. Inventory 1,000 Cr. A/P, Cash, etc. 1,000 Sale of Inventory: Dr. Cost of Goods Sold 1,000 Cr. Inventory 1,000 Dr. Cash, A/R, etc. 1,500 Cr. Sales Revenue 1,500 At Year-End: no j/e required, unless errors are found in inventory count Inventory System - Periodic Purchases are debited to Purchases account. Freight-in, Purchase Returns Allowances and Purchase Discounts are recorded in their respective accounts. COGS is computed only periodically: COGA – EI COGS J/E, Periodic System: Purchase of Inventory: Dr. Purchases 1,000 Cr. A/P, Cash, etc. 1,000 Sale of Inventory: Dr. Cash, A/R, etc. 1,500 Cr. Sales Revenue 1,500 At Year-End: Dr. Ending Inventory determined by count 38,000 Dr. Cost of Sales plug 283,000 Cr. Purchases 286,000 Cr. Opening Inventory carried forward from prior year 35,000 Effect of Inventory Errors O/S Ending Cost flow assumptions need not be consistent with physical flow of goods. The objective is to most clearly reflect periodic income. The cost flow assumptions are: Specific i