century 21 accounting © thomson/south-western lesson 6-1 the nature of merchandise inventory
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CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 6-1LESSON 6-1
The Nature of Merchandise Inventory
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
Cost ofMerchandise
Available for Sale
BeginningMerchandise
Inventory
NetPurchases
EndingMerchandise
Inventory
Cost ofMerchandise
Sold
FLOW OF INVENTORY COSTSFLOW OF INVENTORY COSTS page 171
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
EFFECTS OF ERRORS IN EFFECTS OF ERRORS IN COSTING AN INVENTORYCOSTING AN INVENTORY page 171
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
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4. Enter all purchase transactions.
3. Record all sales transactions.
STOCK RECORD FOR A PERPETUAL STOCK RECORD FOR A PERPETUAL INVENTORY SYSTEMINVENTORY SYSTEM page 173
1. Record the description information.
2. Write the beginning quantity.
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
1. Enter inventory date and item description.
2. Record stock numbers and descriptions.
3. Write the number of units on hand.
4. Record the unit price.
5. Calculate and record the total item cost.6. Total the column.
INVENTORY RECORD USED FOR THE INVENTORY RECORD USED FOR THE PERIODIC INVENTORYPERIODIC INVENTORY page 174
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
TERMS REVIEWTERMS REVIEW
consignment consignee consignor stock record stock ledger purchase order inventory record
page 175
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 6-2LESSON 6-2
Inventory Costing
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
1. Assign units from most recent purchase.
2. Assign units from next most recent purchase.
3. Multiply ending inventory units by unit price.
4. Total the ending inventory columns.
FIRST-IN, FIRST-OUT FIRST-IN, FIRST-OUT INVENTORY COSTING METHODINVENTORY COSTING METHOD page 176
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
1. Assign units from earliest purchase.
2. Assign units from next earliest purchase.
3. Multiply ending inventory units by unit price.
4. Total the ending inventory columns.
LAST-IN, FIRST-OUT LAST-IN, FIRST-OUT INVENTORY COSTING METHODINVENTORY COSTING METHOD page 177
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
WEIGHTED-AVERAGE WEIGHTED-AVERAGE INVENTORY COSTING METHODINVENTORY COSTING METHOD page 177
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
COSTING INVENTORY DURING COSTING INVENTORY DURING PERIODS OF INCREASING PRICESPERIODS OF INCREASING PRICES page 178
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
COSTING INVENTORY DURING COSTING INVENTORY DURING PERIODS OF DECREASING PRICESPERIODS OF DECREASING PRICES page 179
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
RESULTS OF THE THREE INVENTORY RESULTS OF THE THREE INVENTORY COSTING METHODS COMPAREDCOSTING METHODS COMPARED page 179
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
1. Calculate the cost.
2. Calculate the market price.
3. Determine the smaller number to use as the lower of cost or market amount.
LOWER OF COST OR MARKET LOWER OF COST OR MARKET INVENTORY COSTING METHODINVENTORY COSTING METHOD page 180
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
TERMS REVIEWTERMS REVIEW
first-in, first-out inventory costing method last-in, first-out inventory costing method weighted-average inventory costing method lower of cost or market inventory costing method
page 181
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 6-3LESSON 6-3
Estimating the Inventory
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
1. Write beginning inventory amount.
2. Determine net purchases.
7. Determine estimated ending inventory.
6. Calculate estimated cost of merchandise sold.
5. Estimate gross profit.
4. Enter net sales.
3. Calculate merchandise available for sale.
GROSS PROFIT METHOD OF GROSS PROFIT METHOD OF ESTIMATING INVENTORYESTIMATING INVENTORY page 182
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
1. Enter beginning inventory at cost and retail.
2. Add net purchases at cost and retail. 6. Determine estimated ending
inventory cost.
5. Calculate estimated ending inventory at retail.
4. Write net sales.
3. Calculate merchandise available for sale at cost and retail.
RETAIL METHOD OF RETAIL METHOD OF ESTIMATING INVENTORYESTIMATING INVENTORY page 183
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
Average Merchandise
Inventory
=2÷December 31 Merchandise
Inventory+
January 1 Merchandise
Inventory
$925,368.00 + $170,845.00 = 5.4 times
Cost of Merchandise
Sold+
Average Merchandise
Inventory=
Merchandise Inventory
Turnover Ratio
MERCHANDISE MERCHANDISE INVENTORY TURNOVERINVENTORY TURNOVER
($168,365.00 + $173,325.00) ÷ 2 = $170,845.00
page 184
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
AVERAGE NUMBER OF DAYS’ SALES IN AVERAGE NUMBER OF DAYS’ SALES IN MERCHANDISE INVENTORY MERCHANDISE INVENTORY
Average Number of Days’ Sales in
Merchandise Inventory=
Merchandise Inventory
Turnover Ratio÷Days in Year
365 ÷ 5.4 = 68 days
page 184
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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-1
TERMS REVIEWTERMS REVIEW
retail method of estimating inventory merchandise inventory turnover ratio average number of days’ sales in merchandise
inventory
page 185