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Unformatted text preview: Cost of goods available for sale (—) COGS Ending inventory l><l>< X > Gross profit method of estimating inventory cost. 0 A gross profit percentage rate is estimated based on previous experience adjusted for known changes. ' Estimated gross profit is calculated by multiplying the estimated gross profit rate times the actual net sales. Estimated cost of merchandise sold is calculated by subtracting the gross profit from actual sales, Cost of merchandise sold is estimate is deducted from actual merchandise available for sale to determine the estimated cost of merchandise inventory. Example; Beginning inventory 14,000 Net purchase 66,000 Cost of good available for sale 80,000 COGS: Sales 100,000 Less: Estimated gross profit (40%x_ 100,000) 40,000 Estimated COGS 60,000 Estimated cost of ending inventory 20,000 13. lNTERNAL CONTROL OVER INVENTORY important because inventory is such an important asset Elements ofgood internal control over inventory include: a) Physically counting inventory at least once each year regardless of which inventory accounting system is used. b) Storing inventory to protect it against theft , damage and decay c) Allowing access to inventory only to personnel who do not have access to the accounting period d) Keeping perpetual inventory record for high unit cost merchandise. e) Keeping enough inventories on hand to prevent shortage situations, which lead to lost of sales. t) Not keeping too large an inventory stockpiled, thus avoiding the expense of tying up money in unneeded items. 9) Purchasing inventory in economical quantities rain i .{l ...
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