Ch06. Translation

8/11/2019 Ch06. Translation

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Chapter6-1

Chapter

6

Inventories

Accounting Principles, Ninth Edition


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Chapter6-2

1. Menggambarkan langkah2 dalam menentukan jumlahinventory .

2. Menjelaskan akuntansi utk inventories danpenerapan metode inventory cost flow .

3. Menjelaskan dampak financial dari asumsiinventory cost flow .

4. Menjelaskan the lower-of-cost-or-market basis ofaccounting utk inventories.

5. Menunjukkan dampak dari kesalahan nventoryterhadap lap keuangan.

6. Menghitung dan menginterpretasikan inventory

turnover ratio.

Study Objectives


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Chapter6-3

Statement

Presentation

and Analysis

Reporting and Analyzing Inventory

Taking a

physical

inventory

Determining

ownership of

goods

Classifying

Inventory

Determining

Inventory

Quantities

Inventory

Costing

Inventory

Errors

Finished

goods

Work in

process

Raw materials

Specific

identification

Cost flow

assumptions

Financial

statement

and tax

effects

Consistent

use

Lower-of-

cost-or-

market

Income

statement

effects

Balance sheet

effects

Presentation

Analysis


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Chapter6-4

Classifying Inventory

One Classification:

Merchandise Inventory

Three Classifications:

Raw MaterialsWork in Process

Finished Goods

MerchandisingCompany

ManufacturingCompany

Regardless of the classification, companies report allinventories under Current Assets on the balance sheet.


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Chapter6-5


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Chapter6-7

Mencakup penghitungan, penimbangan (weighing),atau pengukuran setiap jenis inventory on hand.

Dilakukan :

Pada saat tutup buku atau ketika aktivitastidak terlalu sibuk.

Pada akir periode akuntansi

Taking a Physical Inventory

Determining Inventory Quantities

SO 1 Describe the steps in determining inventory quantities.


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Chapter6-8

Goods in Transit/ barang dalam perjalanan

Barang yg dibeli belum diterima

Barang yang dijual belum dikirim.

Menentukan kepemilikan barang



Goods in transit dimasukkan sebagai inventory sesuaidengan legal title barang tersebut. Legal titleditentukan oleh syarat jual beli.


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Chapter6-9



Illustration 6-1

Ownership of the goodspasses to the buyer whenthe public carrier acceptsthe goods from the seller.

Ownership of the goods

remains with the selleruntil the goods reach the

buyer.

Terms of Sale


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Chapter6-10


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Chapter6-11



Illustration 6-1

Kepemilikan barangberpindah kepada

pembeli/buyer ketikabarang sudah diterima olehpublic carrier dari penjual/

seller.

Kepemilikan barang tetap

pada seller samapaibarang diterima oleh

buyer.

Terms of Sale


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Chapter6-12

Goods in transit should be included in theinventory of the buyer when the:

a. public carrier accepts the goods from theseller.

b. goods reach the buyer.

c. terms of sale are FOB destination.d. terms of sale are FOB shipping point.

Review Question




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Chapter6-13

Consigned Goods/ barang konsinyasi

Menjualkan barang milik orang lain utkmemperoleh fee, tanpa memiliki barangtersebut. (barang titipan)

Disebut barang konsinyasi/ consigned goods.

Determining Ownership of Goods




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Chapter6-14

Unit costs can be applied to quantities on handusing the following costing methods:

Specific Identification

First-in, first-out (FIFO)

Last-in, first-out (LIFO)

Average-cost

Inventory Costing

SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.

Cost FlowAssumptions


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Chapter6-15

An actual physical flow costing methodin whichitems still in inventory are specifically costed to

arrive at the total cost of the ending inventory.Practice is relatively rare.

Most companies make assumptions (Cost Flow

Assumptions) about which units were sold.

Specific Identification Method

Inventory Costing



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Chapter6-16

Illustration: Assume that Crivitz TV Company purchasesthree identical 46-inch TVs on different dates at costsof $700, $750, and $800. During the year Crivitz soldtwo sets at $1,200 each.

Inventory Costing


Illustration 6-2


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Chapter6-17

Illustration: If Crivitz sold the TVs it purchased onFebruary 3 and May 22, then its cost of goods sold is$1,500 ($700 $800), and its ending inventory is $750.

Inventory Costing


Illustration 6-3


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Chapter6-18 SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.

Inventory Costing Cost Flow Assumptions

Illustration 6-11Use of cost flow methods inmajor U.S. companies

Cost Flow Assumption

does not need to equal

Physical Movement of

Goods


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Chapter6-19



Illustration: Assume that Houston Electronics uses aperiodic inventory system.Illustration 6-4

A physical inventory at the end of the year determined thatduring the year Houston sold 550 units and had 450 units ininventory at December 31.


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Chapter6-20

Earliest goods purchased are first to be sold.

Often parallels actual physical flow ofmerchandise.

Generally good business practice to sell oldestunits first.

First-In-First-Out (FIFO)




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First-In-First-Out (FIFO) Illustration 6-5


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First-In-First-Out (FIFO) Illustration 6-5


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Chapter6-23

Latest goods purchased are first to be sold.

Seldom coincides with actual physical flow ofmerchandise.

Exceptions include goods stored in piles, such ascoal or hay.

Last-In-First-Out (LIFO)




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Chapter6-24

Last-In-First-Out (LIFO)



Illustration 6-7


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Chapter6-26

Allocates cost of goods available for sale on thebasis of weighted average unit costincurred.

Assumes goods are similar in nature.

Applies weighted average unit cost to the unitson hand to determine cost of the ending

inventory.

Average-Cost




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Chapter6-27

Average Cost



Illustration 6-10


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Average Cost Illustration 6-10


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Chapter

6-29 SO 3 Explain the financial effects of the inventory cost flow assumptions.


Financial Statement and Tax Effects Illustration 6-12


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Chapter

6-31

In a period of inflation, the cost flow methodthat results in the lowest income taxes is the:

a. FIFO method.b. LIFO method.

c. average cost method.

d. gross profit method.

Review Question


SO 3 Explain the financial effects of the inventory cost flow assumptions.


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Chapter

6-32

Q6-12 Casey Company has been using the FIFO

cost flow method during a prolonged period of

rising prices. During the same time period,

Casey has been paying out all of its net income

as dividends. What adverse effects may

result from this policy?

Discussion Question

See notes page for discussion




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Chapter

6-33

Using Cost Flow Methods Consistently

Inventory Costing

Method should be used consistently, enhancescomparability.

Although consistency is preferred, a companymay change its inventory costing method.

Illustration 6-14Disclosure of changein cost flow method



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Chapter

6-35

Lower-of-Cost-or-Market

Inventory Costing

SO 4 Explain the lower-of-cost-or-marketbasis of accounting for inventories.

When the value of inventory is lower than its cost

Companies can write down the inventory to its

market value in the period in which the pricedecline occurs.

Market value = Replacement Cost

Example of conservatism.


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Chapter

6-36

Lower-of-Cost-or-Market/Terendah C or M

Inventory Costing

SO 4 Explain the lower-of-cost-or-marketbasis of accounting for inventories.

Jika nilai inventory lebih rendah drpd cost nya

Perusahaan dapat menurunkan/ write down the

inventory ke market value dlm periode ketikaterjadi penurunan harga.

Market value = Replacement Cost

Example of conservatism.


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Chapter

6-38

Inventory Errors

SO 5 Indicate the effects of inventory errors on the financial statements.

Common Cause:

Failure to count or price inventory correctly.

Not properly recognizing the transfer oflegal title to goods in transit.

Errors affect both the income statement andbalance sheet.


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Chapter

6-39

Inventory Errors


Inventory errors affect the computation of cost ofgoods sold and net income.

Income Statement Effects

Illustration 6-17

Illustration 6-16


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Chapter

6-40

Inventory Errors


Inventory errors affect the computation of cost of goodssold and net income in two periods.

An error in ending inventory of the current periodwill have a reverse effect on net income of thenext accounting period.

Over the two years, the total net income is correct

because the errors offset each other.The ending inventory depends entirely on theaccuracy of taking and costing the inventory.

Income Statement Effects


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Chapter

6-41

Inventory Errors


Incorrect Correct Incorrect Correct

Sales 80,000$ 80,000$ 90,000$ 90,000$

Beginning inventory 20,000 20,000 12,000 15,000

Cost of goods purchased 40,000 40,000 68,000 68,000

Cost of goods available 60,000 60,000 80,000 83,000Ending inventory 12,000 15,000 23,000 23,000

Cost of good sold 48,000 45,000 57,000 60,000

Gross profit 32,000 35,000 33,000 30,000

Operating expenses 10,000 10,000 20,000 20,000

Net income 22,000$ 25,000$ 13,000$ 10,000$

2010 2011

($3,000)Net Incomeunderstated

$3,000Net Incomeoverstated

Combined income for2-year period is correct.

Illustration 6-18


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Chapter

6-42

Understating ending inventory will overstate:

a. assets.

b. cost of goods sold.c. net income.

d. owner's equity.

Review Question

Inventory Errors



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Chapter

6-43

Inventory Errors


Effect of inventory errors on the balance sheet isdetermined by using the basic accounting equation:.

Balance Sheet Effects

Illustration 6-16

Illustration 6-19


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Chapter

6-44

Statement Presentation and Analysis

Balance Sheet- Inventory classified as current asset.

Income Statement- Cost of goods sold subtracted

from sales.

There also should be disclosure of

1) major inventory classifications,

2) basis of accounting (cost or LCM), and

3) costing method (FIFO, LIFO, or average).

Presentation


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Chapter

6-45


Inventory management is a double-edged sword

1. High Inventory Levels- may incur high carrying

costs (e.g., investment, storage, insurance,obsolescence, and damage).

2. Low Inventory Levelsmay lead to stockouts andlost sales.

Analysis

SO 6 Compute and interpret the inventory turnover ratio.


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Chapter

6-47

Illustration: Wal-Mart reported in its 2008 annualreport a beginning inventory of $33,685 million, an endinginventory of $35,180 million, and cost of goods sold for the

year ended January 31, 2008, of $286,515 million. Theinventory turnover formula and computation for Wal-Mart

are shown below.


SO 6 Compute and interpret the inventory turnover ratio.

Illustration 6-21

Days in Inventory: Inventory turnover of 8.3 times dividedinto 365 is approximately 44 days. This is the approximatetime that it takes a company to sell the inventory.


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C Fl M h d P l


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Chapter

6-49

Cost Flow Methods in Perpetual Systems

SO 7 Apply the inventory cost flow methods to perpetual inventory records.

First-In-First-Out (FIFO)

Cost of Goods SoldEnding Inventory

Illustration 6A-2


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C Fl M h d i P l S


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Chapter

6-51

Cost Flow Methods in Perpetual Systems

SO 7 Apply the inventory cost flow methods to perpetual inventory records.

Average Cost (Moving-Average System)Illustration 6A-4

Cost of Goods Sold Ending Inventory


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Chapter

6-52

Estimating Inventories

The gross profit method estimates the cost of endinginventory by applying a gross profit rate to net sales.

Gross Profit Method

SO 8 Describe the two methods of estimating inventories.

Illustration 6B-1


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Chapter

6-53


Illustration: Kishwaukee Companys records for January shownet sales of $200,000, beginning inventory $40,000, and cost ofgoods purchased $120,000. The company expects to earn a 30%gross profit rate. Compute the estimated cost of the endinginventory at January 31 under the gross profit method.


Illustration 6B-2


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Chapter

6-54


Company applies the cost-to-retail percentage to endinginventory at retail prices to determine inventory at cost.

Retail Inventory Method


Illustration 6B-3


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Chapter

6-55



Note that it is not necessary to take a physical inventory todetermine the estimated cost of goods on hand at any given time.

Illustration 6B-4Illustration:


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Chapter

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