acct2020 introduction to accounting for non-business majors chapter 7

7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 7

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Reporting and Interpreting CostReporting and Interpreting Cost

of Goods Sold and Inventoryof Goods Sold and InventoryChapter 7

McGraw-Hill/Irwin © 2! "he McGraw-Hill Co#panies$ Inc%



McGraw-Hill/Irwin Slide 2

&low of Inventory Costs

MerchandiseMerchandise

PurchasesPurchases


PurchasesPurchasesCost of Cost of

Goods SoldGoods Sold

Cost of Cost of

Goods SoldGoods SoldMerchandiseMerchandise

InventoryInventory


InventoryInventory

Merchandiser

RawRaw

MaterialsMaterials

RawRaw

MaterialsMaterialsRaw MaterialsRaw Materials

InventoryInventory

Raw MaterialsRaw Materials

InventoryInventoryWork in ProcessWork in Process

InventoryInventory

Work in ProcessWork in Process

InventoryInventoryFinished GoodsFinished Goods

InventoryInventory

Finished GoodsFinished Goods

InventoryInventory

Cost of Cost of


Cost of Cost of


Manufacturer

DirectDirect

Laor Laor

DirectDirect

Laor Laor

FactoryFactory

!verhead!verhead

FactoryFactory

!verhead!verhead



McGraw-Hill/Irwin Slide "

'at(re of Cost of Goods Sold

#e$innin$#e$innin$InventoryInventory

#e$innin$#e$innin$InventoryInventory

PurchasesPurchasesfor the Periodfor the Period

PurchasesPurchasesfor the Periodfor the Period

%ndin$ Inventory%ndin$ Inventory

&#alance Sheet'&#alance Sheet'

%ndin$ Inventory%ndin$ Inventory

&#alance Sheet'&#alance Sheet'

Goods availaleGoods availalefor Salefor Sale

Goods availaleGoods availale

for Salefor Sale

Cost of Goods SoldCost of Goods Sold

&Inco(e State(ent'&Inco(e State(ent'


&Inco(e State(ent'&Inco(e State(ent'

Beginning inventory + Purchases = Goods Available for SaleBeginning inventory + Purchases = Goods Available for Sale

Goods Available for Sale – Ending inventory = Cost of goods soldGoods Available for Sale – Ending inventory = Cost of goods sold

Beginning inventory + Purchases = Goods Available for SaleBeginning inventory + Purchases = Goods Available for Sale

Goods Available for Sale – Ending inventory = Cost of goods soldGoods Available for Sale – Ending inventory = Cost of goods sold



McGraw-Hill/Irwin Slide )

Inventory Costing Methods

Total ollar A!ount of GoodsTotal ollar A!ount of Goods

Available for SaleAvailable for Sale

Total ollar A!ount of GoodsTotal ollar A!ount of Goods

Available for SaleAvailable for Sale

Ending "nventoryEnding "nventory

Ending "nventoryEnding "nventory Cost of Goods SoldCost of Goods Sold


Inventory Costin$

Method

Inventory Costing

Methods1.SpecifcIdentifcation

2.First-in, First-out

3.Last-in, First-out4.eighted !verage



McGraw-Hill/Irwin Slide *

Speci)c Identi)cation

*hen (nitsare sold$ the

speci)c costof the (nit

sold is addedto cost of

goods sold%

*hen (nitsare sold$ the

speci)c cost of the (nit

sold is addedto cost of

goods sold%



McGraw-Hill/Irwin Slide +

&irst-In$ &irst-+(t Method

Cost ofCost of


Cost ofCost of

Goods SoldGoods Sold#ldest Costs#ldest Costs

#ldest Costs#ldest Costs

EndingEnding"nventory"nventory

EndingEnding

"nventory"nventory$ecent Costs$ecent Costs

$ecent Costs$ecent Costs


http://slidepdf.com/reader/full/acct2020-introduction-to-accounting-for-non-business-majors-chapter-7 7/14McGraw-Hill/Irwin Slide ,

,ast-In$ &irst-+(t Method

EndingEnding

"nventory"nventory

EndingEnding

"nventory"nventory

Cost ofCost of


Cost ofCost of


#ldest Costs#ldest Costs#ldest Costs#ldest Costs

$ecent Costs$ecent Costs$ecent Costs$ecent Costs


http://slidepdf.com/reader/full/acct2020-introduction-to-accounting-for-non-business-majors-chapter-7 8/14McGraw-Hill/Irwin Slide -

verage Cost Method

*hen a (nit is sold$ theaverage cost of each(nit in inventory isassigned to cost of

goods sold%

*hen a (nit is sold$ theaverage cost of each(nit in inventory isassigned to cost of

goods sold%Cost of Goods

.vailale for

Sale

/u(er of

0nits

.vailale for

Sale

%


http://slidepdf.com/reader/full/acct2020-introduction-to-accounting-for-non-business-majors-chapter-7 9/14McGraw-Hill/Irwin Slide 1

&inancial State#ent .ects of CostingMethods

.dvanta$es of Methods .dvanta$es of Methods .dvanta$es of Methods .dvanta$es of Methods

#etter (atches#etter (atches

current costs in costcurrent costs in cost

of $oods sold withof $oods sold with

revenuesrevenues

#etter (atches#etter (atches

current costs in costcurrent costs in cost

of $oods sold withof $oods sold with

revenuesrevenues

%ndin$ inventory%ndin$ inventory

a33ro4i(atesa33ro4i(ates

currentcurrent

re3lace(ent costre3lace(ent cost

%ndin$ inventory%ndin$ inventory

a33ro4i(atesa33ro4i(ates

currentcurrent

re3lace(ent costre3lace(ent cost

First5In6First5In6First5!utFirst5!utFirst5In6First5In6First5!utFirst5!ut

Last5In6Last5In6First5!utFirst5!utLast5In6Last5In6

First5!utFirst5!ut

S(oothes outS(oothes out

3rice chan$es3rice chan$es

S(oothes outS(oothes out

3rice chan$es3rice chan$es

Wei$htedWei$hted .vera$e .vera$eWei$htedWei$hted .vera$e .vera$e



0al(ation at ,ower of Cost or Mar1et

%ndin$ inventory is re3orted at the%ndin$ inventory is re3orted at the

lower of cost or (arket &LCM'lower of cost or (arket &LCM'

%ndin$ inventory is re3orted at the%ndin$ inventory is re3orted at the

lower of cost or (arket &LCM'lower of cost or (arket &LCM'

Re3lace(ent CostRe3lace(ent Cost

9he current 3urchase 3rice9he current 3urchase 3rice

for identical $oodsfor identical $oods

Re3lace(ent CostRe3lace(ent Cost9he current 3urchase 3rice9he current 3urchase 3rice

for identical $oodsfor identical $oods

The company will recognize a “holding” loss in theThe company will recognize a “holding” loss in the

current period rather than the period in which thecurrent period rather than the period in which the

item is sold.item is sold.

This practice isThis practice is conservativeconservative..

The company will recognize a “holding” loss in theThe company will recognize a “holding” loss in the

current period rather than the period in which thecurrent period rather than the period in which the

item is sold.item is sold.

This practice isThis practice is conservativeconservative..



Internal Control of Inventory

Se3aration of inventoryaccountin$ and 3hysical

handlin$ of inventory

Stora$e in a (anner that3rotects fro( theft and

da(a$e

Li(itin$ access to

authori:ed e(3loyees

Maintainin$ 3er3etual

inventory records

Co(3arin$ 3er3etual

records to 3eriodic

3hysical counts



erpet(al and eriodic InventorySyste#s

ProvidesProvides u&'to'dateu&'to'date inventory records(inventory records(

ProvidesProvides u&'to'dateu&'to'date inventory records(inventory records(

ProvidesProvides u&'to'dateu&'to'date

cost of sales records(cost of sales records(

ProvidesProvides u&'to'dateu&'to'date

cost of sales records(cost of sales records(

Per&etualPer&etual

Syste!Syste!

Per&etualPer&etual

Syste!Syste!

In a 3eriodic inventory syste(6 endin$ inventory and cost of

$oods sold are deter(ined at the end of the accountin$

3eriod ased on a 3hysical count


http://slidepdf.com/reader/full/acct2020-introduction-to-accounting-for-non-business-majors-chapter-7 13/14McGraw-Hill/Irwin Slide 7"

erpet(al and eriodic InventorySyste#s

"nventory Syste!

"te! Periodic Syste! Per&etual Syste!

Beginning "nventoryCarried over

fro! &rior &eriod

Carried over fro!

&rior &eriod

Add) PurchasesAccu!ulated inthe Purchases

account

Accu!ulated inthe "nventory

account

*ess) Ending "nventory

Measured at end

of &eriod by

&hysical

inventory count

Per&etual record

u&dated at every

sale

Cost of Goods Sold

Co!&uted as a

residual a!ount

at end of &eriod

Measured at

every sale based

on &er&etual

record


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.nd of Chapter 7

acct2020 introduction to accounting for non-business majors chapter 7

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