Unformatted text preview: CHAPTER 3
ACCOUNTING FOR MERCHANDISE INVENTORIES
1. WHAT ARE MERCHANDISING ACTIVITIES?
2. OPERATING CYCLE
Begins with the purchase of merchandise and ends with the collection of cash
from the sale of merchandise.
3. WHAT IS INVENTORY
FRS 102 : Inventories are assets:
(a) held for sale in the ordinary course of business;
(b) In the process of production for such sale; or
in the form of materials or supplies to be consumed in the production process
or in the rendering of services
4. INVENTORY CONTROL
. why it is important?
"Inventory is a significant asset and for many companies the largest asset
Inventory is central to the main activity of merchandising and
Mistakes in determining inventory cost can cause critical errors in
To protect from external risks (fire, flood and theft) and internal fraud by
5. INVENTORY COSTS AND RELATIONSHIP
a) if inventory is overstated
COGS is understated
profit / net income is overstated
b) If inventory is understated --
---- ending owner's equity is overstated.
COGS is overstated --
net income is understated
ending owner's equity is
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- Fall '19