© copyright 1999, 2005, 2011 by m. ray gregg. all rights reserved. 1
TRANSCRIPT
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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Inventory Systems
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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periodic
perpetual
Perpetual Inventory• continuously discloses inventory on hand• increases in inventory debited to Inventory
(and posted to subsidiary ledger)• two entries to record sales transactions REVENUE:
REDUCTION IN INVENTORY:
• physical inventory still needed annually to compare with and update inventory records
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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Accounts Receivable -- Customer
retail
Sales retail
Cost of Goods Sold cost
Inventory cost
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Periodic Inventory
• increases recorded in Purchases• at time of sale, record revenue
but no entry for reduction in inventory
• physical inventory (actual count) necessity at end of period to determine cost of goods sold
Real Life Perspective
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© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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Physical Inventory Procedures
• necessity for both periodic and perpetual• goal: count every item; do not count any
item twice
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Physical Inventory Procedures
• necessity for both periodic and perpetual• goal: count every item; do not count any
item twice• have plan and follow it
– establish proper “cut-off” of transactions
As seen in Home Depot, October 12, 2011
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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Physical Inventory Procedures
• necessity for both periodic and perpetual• goal: count every item; do not count any
item twice• have plan and follow it
– establish proper “cut-off” of transactions– business often closes in order to count
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved. 11
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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Physical Inventory Procedures
• necessity for both periodic and perpetual• goal: count every item; do not count any
item twice• have plan and follow it
– establish proper “cut-off” of transactions
– business often closes in order to count
– best to count in “teams” of two
As seen in Home Depot, October 12, 2011
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
15
Physical Inventory Procedures
• necessity for both periodic and perpetual• goal: count every item; do not count any
item twice• have plan and follow it
– establish proper “cut-off” of transactions– business often closes in order to count– best to count in “teams” of two
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
16
Physical Inventory Procedures
• necessity for both periodic and perpetual• goal: count every item; do not count any
item twice• have plan and follow it
– establish proper “cut-off” of transactions– business often closes in order to count– best to count in “teams” of two
• shipping terms determine when title passes
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
17
Physical Inventory Procedures
• necessity for both periodic and perpetual• goal: count every item; do not count any
item twice• have plan and follow it
– establish proper “cut-off” of transactions– business often closes in order to count– best to count in “teams” of two
• shipping terms determine when title passes– FOB SP
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
18
Physical Inventory Procedures
• necessity for both periodic and perpetual• goal: count every item; do not count any item
twice• have plan and follow it
– establish proper “cut-off” of transactions– business often closes in order to count– best to count in “teams” of two
• shipping terms determine when title passes– FOB SP -- title passes when goods are shipped
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved. 19
Physical Inventory Procedures
• necessity for both periodic and perpetual• goal: count every item; do not count any item
twice• have plan and follow it
– establish proper “cut-off” of transactions– business often closes in order to count– best to count in “teams” of two
• shipping terms determine when title passes– FOB SP -- title passes when goods are shipped
– FOB D
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved. 20
Physical Inventory Procedures
• necessity for both periodic and perpetual• goal: count every item; do not count any item
twice• have plan and follow it
– establish proper “cut-off” of transactions– business often closes in order to count– best to count in “teams” of two
• shipping terms determine when title passes– FOB SP -- title passes when goods are shipped
– FOB D -- title passes when goods arrive
BUYER
D
Mack’s Trucking
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Importance of Inventory• most active element
of a merchandising business
• principal source of revenue
• largest current asset
• largest deduction from revenue
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P
EI
BI
Importance of Inventory
COGS
GAFS
To Balance Sheet
To IncomeStatement
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Importance of Inventory
Inventory Net Income Assets Capital
Effects of Misstatement
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Arbitrary Assumptions Concerning Cost Flow
• in order expenditures were made
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Arbitrary Assumptions Concerning Cost Flow
• in order expenditures were made -- FIFO
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Arbitrary Assumptions Concerning Cost Flow
• in order expenditures were made -- FIFO
• in reverse order in which expenditures were made
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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Arbitrary Assumptions Concerning Cost Flow
• in order expenditures were made -- FIFO
• in reverse order in which expenditures were made -- LIFO
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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Arbitrary Assumptions Concerning Cost Flow
• in order expenditures were made -- FIFO
• in reverse order in which expenditures were made -- LIFO
• average of expenditures
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Balance Sheet Income Statement
MI COGS
First In … First OUT
Latest Ite
ms Left O
ver
Time Time Time Time Time Time Time Time Time
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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Balance Sheet Income Statement
MI COGS
Las
t In
Firs
t OU
TOldest Item
s Left
Time Time Time Time Time Time Time Time Time
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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Balance Sheet Income Statement
MI COGS
FIFO LIFO FIFO LIFO
Rising Prices
NI
Time Time Time Time Time Time Time Time Time
Opportunity
• Extension of Lecture• Handout• Video Link on Class Web Site• Demonstration Exercise• Strongly recommended before first
HW assignment
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
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