CHAPTER 19 CHAPTER 19

ACCOUNTING FOR INVENTORY

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19-1 DETERMINING MERCHANDISE INVENTORY19-1 DETERMINING MERCHANDISE INVENTORY

The largest asset of a merchandising business is Merchandise Inventory.

-Many businesses fail because of too much or too little inventory.-Need to control quantity:2 ways to determine quantity:•Periodic Inventory- Counting & weighing•Perpetual Inventory- Continuous book record

-UPC - Universal Product Code

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INVENTORY RECORDINVENTORY RECORD

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1. Write the stock number and description before the periodic inventory begins.

2. Write the actual count in the No. of Units on Hand column.3. Write the unit price and calculate the total cost after the

physical inventory is completed.

A form used during a periodic inventory to record information abouteach item of merchandise on hand is an inventory record.

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STOCK RECORDSTOCK RECORDpage 567

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1. Purchase information 2. Sales information 3. New balance on hand

A form used to show the kind of merchandise, quantity received, quantity sold, and balance on hand is called a stock record.

A file of stock records for all merchandise on hand is a stock ledger.

19-2 DETERMINING COST OF 19-2 DETERMINING COST OF

MERCHANDISE INVENTORYMERCHANDISE INVENTORY

Most businesses use one of three inventory costing methods:

•First-in, First out (FIFO)

•Last-in, First out (LIFO)

•Weighted Average

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FIRST-IN, FIRST-OUT INVENTORY FIRST-IN, FIRST-OUT INVENTORY COSTING METHODCOSTING METHOD

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1. Total units on hand2. Units from the most recent purchase3. Units needed to equal the total units on hand4. Unit price times fifo units5. Total fifo cost

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4. Units needed to equal total units on hand

LAST-IN, FIRST-OUT INVENTORY LAST-IN, FIRST-OUT INVENTORY COSTING METHODCOSTING METHOD page 570

1. Total units on hand

3. Units from the earliest purchase2. Beginning inventory units 5. Unit price times lifo units

6. Total lifo cost

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3. Cost of ending inventory

WEIGHTED-AVERAGE INVENTORY WEIGHTED-AVERAGE INVENTORY COSTING METHODCOSTING METHOD

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2. Weighted-average price per unit

1. Total cost of inventory available

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CALCULATING THE COST OF CALCULATING THE COST OF MERCHANDISE SOLDMERCHANDISE SOLD page 572

Cost ofMerchandise

Sold=

Fifo Cost of Ending

Inventory–

Cost ofMerchandiseAvailable for

Sale$634.00=$386.00–$1,020.00

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COMPARISON OF INVENTORY COMPARISON OF INVENTORY METHODSMETHODS page 572

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You can estimate inventory by using previous year’s percentage of gross profit on operations: Gross Profit Method

19-3 ESTIMATING INVENTORY19-3 ESTIMATING INVENTORY

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GROSS PROFIT METHOD OF GROSS PROFIT METHOD OF ESTIMATING INVENTORYESTIMATING INVENTORY page 574

(continued from previous slide)