Reporting and Analyzing Inventories.pptVIP

Dr. Fred Barbee ACCT 201 Reporting and Analyzing Inventories UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee Reporting and Analyzing Inventories Inventory Items and Costs Items in Merchandise Inventory Items in Merchandise Inventory Goods on Consignment Goods shipped by the owner consignor to another party consignee . Merchandise is included in the inventory of the consignor. Items in Merchandise Inventory Goods Damaged or Obsolete Damaged or obsolete goods are not counted in inventory. Cost should be reduced to net realizable value. Cost of Merchandise Inventory Physical Count of Merchandise Inventory Most companies take a physical count of inventory at least once each year. Physical Count of Merchandise Inventory When the physical count does not match the Merchandise Inventory account, an adjustment must be made. Reporting and Analyzing Inventories Other Inventory Valuations Lower of Cost or Market Lower of Cost or Market Lower of Cost or Market Can be applied three ways: separately to each individual item. to major categories of assets. to the whole inventory. Lower of Cost or Market A motorsports retailer has the following items in inventory Exhibit 5.14 : Lower of Cost or Market Here is how to compute lower of cost or market for individual inventory items. Lower of Cost or Market Lower of Cost or Market Here is how to compute lower of cost or market for the entire inventory. Retail Inventory Method Retail Inventory Method Often used to estimate inventory for interim period reporting. Needed Information includes: Beginning inventory at cost and retail Net purchases at cost and retail Net sales Retail Inventory Method Retail Inventory Method Retail Inventory Method Retail Inventory Method Gross Profit Method Gross Profit Method Estimate ending inventory by applying the gross profit ratio to net sales at retail . Useful when inventory has been destroyed, lost, or stolen. Gross Profit Method Gross Profit Method In March of 2002, Chemical