中山大学会计基础lesson7en.pptVIP

Lesson 7 Merchandise Inventories and Cost of Sales Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Yat-sen University Outline Flow of inventory cost Items and costs of merchandising inventory Assigning costs to inventory Lower of cost or market Errors in measuring inventory Inventory estimating method Introduction While sales and purchases are the focus of operations, inventory is no less important. Inventory costing and evaluation methods can substantially influence the bottom line. Since China’s listed companies were permitted to write down inventories in 1998, inventory has long been criticized as the “income adjustor”. Besides, inventory costing policies and the scope of inventory can also significant change the current and future years income numbers. Nature of Inventory and Cost of Goods Sold Flow of Inventory Costs Accounting for Inventory Accounting for inventory requires several decisions which include: Items to include in cost. Inventory System. Perpetual or Periodic Costing Method. FIFO, LIFO, Weighted Average, Specific ID Use of estimates. Gross profit method, Retail inventory method Items in Merchandise Inventory Inventory includes all goods owned by a company and held for sale. Items requiring special attention: Goods in Transit Goods on consignment Obsolete or damaged goods Costs of Merchandise Inventory All expenditures necessary to bring an item to a saleable condition and location. This includes: Invoice price less discounts Import duties Transportation-in Storage Insurance Assigning Costs to Inventory Management must decide on method of determining unit cost. This will affect both the income statement and the balance sheet. Methods: Specific Identification FIFO LIFO Average Cost Specific Identification This method is used when items: Are unique. Can be directly identified with a specific purchase and its invoice. Specific Identification-Example Specific Identification-Example Specific Identification-Example Specific Identification-E