《financial Accouning, 9e财务会计 Warren》ch09.pptVIP

Inventory is a significant asset and for many companies the largest asset. Inventory is central to the main activity of merchandising and manufacturing companies. Mistakes in determining inventory cost can cause critical errors in financial statements. Inventory must be protected from external risks ( such as fire and theft) and internal fraud by employees. overstated understated overstated overstated Inventory Costing Methods $ 3,800 2,700 4,650 3,920 Total $15,520 $15,472 $15,070 Metro-ArtsBalance SheetDecember 31, 2007 Assets Current assets: Cash $ 19 400 00 Accounts receivable $80 000 00 Less allowance for doubtful accounts 3 000 00 77 000 00 Merchandise inventory at lower of cost (first-in, first-out method) or market 216 300 00 Retail method is based on relationship between cost of merchandise available for sale and the retail price. Retail prices of all merchandise must be accumulated and totaled. Inventory at retail is calculated at retail price of merchandise available for sale less net sales at retail. Ratio is calculated as cost divided by retail price. Inventory at retail price times cost ratio equals estimated cost of inventory. 1. A gross profit percentage rate is estimated based on previous experience adjusted for known changes. 2. Estimated gross profit is calculated by multiplying the estimated gross profit rate times the actual net sales. 3. Estimated cost of merchandise sold is calculated by subtracting the gross profit from actual sales. 4. The cost of merchandise sold estimate is deducted from actual merchandise available for sale to determine the estimated cost of merchandise inventory. Item 127B LIFO Perpetual Inventory Account Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 4 7 20 140 3 20 60 10 8 21 168 3 20 60 8