Lecture 7 - Student 2pp

Lecture 7 - Student 2pp - RETAIL INVENTORY Chapter 6...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
1 RETAIL INVENTORY Developed by John Wiley Ltd Adapted by Abdul Razeed Chapter 6 Accounting 1A | ACCT 1001 2 Learning Objectives 1. Inventory Overview 2. Account for inventory by the Specific Identification, FIFO, LIFO and average cost methods using Periodic and Perpectual Inventory Systems. 3. Compare the effects of FIFO, LIFO and average cost. 4. Apply accounting principles to inventory measurement and disclosure. 5. Measure the effects of inventory errors. 6. Estimate Ending Inventory using gross profit and retail
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 3 LO1-Inventory Overview* › Inventory refers to assets held for the in the ordinary course of business. It may also be referred to as “inventory”, “merchandise”, “stock” or “trading stock” and does not include assets acquired to operate the business (eg equipment or supplies) › Inventory is typically recorded as a while in stock (ie when on hand) › When sold, inventory becomes an expense called “ › Perpetual inventory systems keep a record of changes in inventory (including both asset costs & COGS) › Periodic inventory systems keep a record of purchases and use this to calculate Inventory & COGS at the end of the year 4 LO1-Inventory Overview* › The Income Statement shows the revenues and expenses that relate to the sale of inventory separately to all other revenues and expenses › Terminology: - Revenue from selling inventory is referred to as * - Reductions in revenue due to customers bringing product back for credit (or refund) are called Sales returns - The amount of sales less the returns is called Net sales - The total cost of inventory sold during the period is an expense called Cost of goods sold (COGS) - The amount of profit made from buying and reselling inventory is called Gross Profit - The amount of profit after adding all other revenue
Background image of page 2
3 5 LO1-Inventory Overview › Identifying the cost of an item of inventory purchased is relatively easy. .. - The cost is taken directly from the purchase invoice. › Identifying the cost of an item of inventory sold can be more difficult… - Do we know the exact original cost of the sold item? OR - Do we need to estimate an appropriate cost to “assign” to the item sold? 6 1.Specific unit cost (Specific Identification) - Mandated by AASB when inventory items differ (e.g. motor vehicles, jewellery) 2.Average cost 3. First-In, First-Out (FIFO) - Oldest units sold first 4. Last-In, First-Out (LIFO): - Newest units sold first - Not allowed in Australia under AIFRS - Commonly used in US, and by some Australian subsidiaries of US companies to report to head office. N.B. Firms must: - Disclose which inventory costing method they have chosen to use - Be consistent to ensure inventory information is comparable - Be conservative–follow the “ Lower of Cost or Market” (LCM) Rule LO2-Methods for estimating inventory
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 7 LO2-Methods for estimating inventory* The Lower of Cost or Market (LCM) › When valuing inventory, an overriding rule is the LCM rule. This states that
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 16

Lecture 7 - Student 2pp - RETAIL INVENTORY Chapter 6...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online