horngren_acct7_ch06.ppt

1、1,Merchandise Inventory,Chapter 6,2,Objective 1,Account for inventory by the FIFO, LIFO, and average cost methods,3,Inventory Costing Methods,Specific Unit Cost FIFO LIFO Average Cost,Specific Unit Cost,When units are sold, the specific cost of the unit sold is added to cost of goods sold,First-In,

2、First-Out (FIFO),Cost of Goods Sold,Ending Inventory,Oldest Costs,Recent Costs,First-In, First-Out (FIFO),Beginning Inventory,Purchase 5 shirts,Then we sell 4 shirts for $20 each. What costs should be assigned to Cost of Goods Sold?,First-In, First-Out,Cost of good sold = $42,Inventory = $48,First-I

3、n, First-Out (FIFO),Accounts Receivable ($20 x 4)80 Sales Revenue80 To record sales on account Cost of Goods Sold42 Inventory42 To record cost of sales,First-In, First-Out (FIFO),Sales$80 Cost of Goods Sold42 Gross Profit$38,9,Last-In, First-Out (LIFO),Recent Costs,Oldest Costs,10,Last-In, First-Out

4、 (LIFO),Beginning Inventory,Purchase 5 shirts,Then we sell 4 shirts for $20 each. What costs should be assigned to Cost of Goods Sold?,Last-In, First-Out,Cost of good sold = $48,Inventory = $42,11,Last-In, First-Out (LIFO),Accounts Receivable ($20 x 4)80 Sales Revenue80 To record sales on account Co

5、st of Goods Sold48 Inventory48 To record cost of sales,12,Last-In, First-Out (LIFO),Sales$80 Cost of Goods Sold48 Gross Profit$32,13,Average Cost,The average cost of each unit in inventory is assigned to cost of goods sold,Average Cost,14,Average Cost,Beginning Inventory,Purchase 5 shirts,Then we se

6、ll 4 shirts for $20 each. What costs should be assigned to Cost of Goods Sold?,Compute the Average Cost UnitsCost Beginning inventory3$30 Purchases560 Total8$90 Average = $90/8 = $11.25,Cost of good sold = $11.25 x 4 = $45,Inventory = $11.25 x 4 = $45,15,Average Cost,Accounts Receivable ($20 x 4)80

7、Sales Revenue80 To record sales on account Cost of Goods Sold45 Inventory45 To record cost of sales,16,Average Cost,Sales$80 Cost of Goods Sold45 Gross Profit$35,17,Objective 2,Compare the effects of FIFO, LIFO, and average cost,18,Comparison,19,Advantage of Each Method,First-In, First-Out,Weighted

8、Average,Last-In, First-Out,20,Use of Inventory Methods in Practice,21,E6-13,Nov 1 Bal.5$70$350 6 3 $70 $210 2 70 140 8 10$79$790270140 1079790 172$70140 279158879632 30579395379237,Total cost of goods sold for November = $903,Cost of ending inventory for November = $237,22,E6-14,Nov8Inventory790 Acc

9、ounts Payable790 Purchased inventory on account Nov17Cash480 Sales Revenue480 To record sales for cash 17Cost of Goods Sold298 Inventory298 To record cost of sales,23,E6-15,Nov 1 Bal.5$70$350 6 3 $70 $210 2 70 140 8 10$79$790270140 1079790 17479316270140 679474 30579395270140 17979,Total cost of goo

10、ds sold for November = $921,Cost of ending inventory for November = $219,24,E6-16,Nov 1 Bal.5$70.00$350.00 6 3$70.00 $210.00 270.00140.00 8 10$79$79012 77.50930.00 174 77.50310.008 77.50620.00 305 77.50387.503 77.50232.50,Total cost of goods sold for November = $907.50,Cost of ending inventory for N

11、ovember = $232.50,25,Analysis of E6-13, 15, 16,In this illustration, prices are rising. What impact do these different methods have on the income statement? Lets assume that all items were sold for $100 each,* Rounded,26,Analysis of E6-13, 15, 16,How about the balance sheet?,* Rounded,27,Accounting

12、Principles,Consistency Principle Disclosure Principle Materiality Concept Accounting Conservatism,28,Consistency in Reporting,A company should use the same accounting methods from period to period so that financial statements are comparable across periods,29,Disclosure Principle,Report enough inform

13、ation for outsiders to make wise decisions about the company,30,Materiality Concept,A company must perform strictly proper accounting only for significant items,31,Accounting Conservatism,Exercise caution in reporting items in the financial statements Report realistic figures,32,Objective 3,Apply th

14、e lower-of-cost-or market rule to inventory,33,Lower-or-Cost-or-Market Rule,Example of Accounting Conservatism Inventory is reported at whichever is lower historical cost or market value (current replacement cost) If market is lower than cost write inventory down Debit Cost of Goods Sold Credit Inve

15、ntory,34,Lower-or-Cost-or-Market Rule,Must disclose method of valuation in financial statements As parenthetical in statements or In notes to financial statements,35,E6-22,Dec31Cost of Goods Sold1,000 Inventory1,000 LCM adjustment,Cost of Goods Sold,72,000,1,000,Bal 73,000,Inventory,14,000,1,000,Bal

16、 13,000,36,E6-22,Eagle Resources Income Statement (partial) For the Year Ended December 31, 2006 Sales revenue$118,000 Cost of goods sold 73,000 Gross profit$45,000,37,Objective 4,Measure the effects of inventory errors,38,Inventory Errors,Ending inventory becomes next years beginning inventory Resu

17、lts in misstatement of income statement over two years Misstatement of balance sheet in first year and then error counterbalances itself,39,Inventory Errors,If ending inventory is overstated, so is net income and gross profit. Cost of Goods sold is understated If ending inventory is understated, so

18、is net income and gross profit. Cost of Goods sold is overstated In year two, the effects of year one are reversed,40,E6-25,Notice: Net income for the two years combined is the same in both cases. The error in 2006 counterbalances the error in 2005,Sales revenue$137,000$120,000 Cost of Goods Sold Be

19、ginning inventory$14,000$12,000 Net purchases72,00066,000 Cost of goods available$86,000$78,000 Ending inventory(16,000)(14,000) Cost of goods sold70,00064,000 Gross profit$67,000$56,000 Operating expenses25,00020,000 Net income$42,000$36,000,(11,000),67,000,$53,000,$33,000,$11,000,$83,000,67,000,$70,000,$45,000,41,Ethical Issues,How might companies try to mislead readers of financial statements by manipulating inventory?,42,Objective 5,Estimate ending inventory by the gross profit method,43,Gross Profit Method,Estimate ending inventory by applying the gross profit ratio to net sales Usef