专业英语会计英语第五单元

1、2021年10月16日星期六1Chapter 5Chapter 5 Inventory Inventory and Cost of Goods Soldand Cost of Goods SoldPPTs made by Rebecca2021年10月16日星期六2Learning Objectives1. Identify cost to be included in inventories.2. Determine inventory quantities under periodic inventory system and perpetual inventory system.3. C

2、ompute cost of goods sold and ending inventory 4. State the effect of inventory errors on financial statements.2021年10月16日星期六3Learning Objectives5. Valuate inventory using lower of cost or market (LCM) method.6. Estimate the cost of ending inventory by using gross profit method and retail method.7.

3、Disclose information of inventory in financial statements.8. Analyze the information- merchandise turnover.2021年10月16日星期六4Inventories DefinitionInventories are finished goods or merchandise held by an enterprise for sale in the ordinary course of business, or work in progress in the process of produ

4、ction for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services.2021年10月16日星期六5Types of CompanieslMerchandising companySells goods in same form as acquired.lManufacturing companyConverts raw material into finished goods.2021年10月16

5、日星期六6Types of Companies/InventorieslMerchandisingSells goods in same form in which they are acquired. Inventory costs (and costs of goods sold) = acquisition costs.2021年10月16日星期六7Types of Companies/Inventories(Cont.)Manufacturing company converts raw materials and purchased parts into finished goods

6、. 3 types of inventories;Raw materials.Work-in-process.Finished goods.2021年10月16日星期六8Inventory costv Record inventories at their original cost.v Inventory cost consists of all costs involved in 1. buying the inventory (invoice cost of goods, freight-in)2.Making goods ready for sale( unpacking and ma

7、rking)2021年10月16日星期六9Methods of Accounting for Purchase DiscountsRecord at invoice price( in china) If paid within the discount period, recognize financial revenue.2021年10月16日星期六10Who Owns the Inventory?u With terms of FOB (free-on-board) shipping point, ownership of the goods changes hands when the

8、 goods are originally shipped.u FOB destination indicates that the seller is paying the shipping costs and thus owns the inventory until it is delivered; accordingly, ownership changes hands when the goods reach their destination. 2021年10月16日星期六11Measurement IssuelTwo approaches:Periodic inventory m

9、ethod.Perpetual inventory method.2021年10月16日星期六12Relationship of Inventory and Cost of Goods SoldBeginning inventory + net purchases = goods available for saleGoods available for sale = cost of goods sold + ending inventory.Equivalently: Beg. inventory + net purchases -ending inventory = cost of goo

10、ds sold. Net purchases = gross purchases -purchase returns and allowances + freight-in2021年10月16日星期六13Periodic Inventory MethoduCount inventory (i.e., a physical inventory is taken) at the end of the period. uMultiply count times cost for each item to determine total amount of inventory.nBeginning i

11、nventory of current period = ending inventory of preceding period.uCOGS = COGA - End. Inventory2021年10月16日星期六14Perpetual Inventory MethodUpdate the Mechandise Inventory account after each purchase and after each sale.Advantages of perpetual inventory method:management is able to monitor the inventor

12、y on hand on a regular basis.aid in planning future purchases.2021年10月16日星期六155.3 Purchase, Discount, Return & Allowance 2021年10月16日星期六16Credit Terms and Cash Discounts2/10, n/30Read as: “Two ten, net thirty” When manufacturers and wholesalers sell their products on account, the credit terms are

13、 stated in the invoice.2021年10月16日星期六17Credit Terms and Cash Discounts2/10, n/30Percentage of Discount# of Days Discount Is AvailableOtherwise, the Full Amount Is Due # of Days when Full Amount Is Due2021年10月16日星期六18Recording Purchases at Gross Invoice PricePurchases are recorded at their gross amou

14、nts.Purchase discounts taken are recorded when payment is made inside the discount period.Gross Method2021年10月16日星期六19Recording Purchases at Gross Invoice PriceOn July 6, Play Clothes purchased $4,000 of merchandise on credit with terms of 2/10, n/30 from Kids Clothes. Prepare the journal entry for

15、Play Clothes.2021年10月16日星期六20Recording Purchases at Gross Invoice PriceOn July 15, Play Clothes pays the full amount due to Kids Clothes. Prepare the journal entry for Play Clothes.Reduces Cost of Goods Sold$4,000 98% = $3,9202021年10月16日星期六21Recording Purchases at Gross Invoice PriceNow, assume that

16、 Play Clothes waited until July 20 to pay the full amount due to Kids Clothes. Prepare the journal entry for Play Clothes.2021年10月16日星期六22Returns of Unsatisfactory MerchandiseOn August 5, Play Clothes returned $500 of unsatisfactory merchandise purchased from Kids Clothes on credit terms of 2/10, n/

17、30. The purchase was originally recorded at gross cost. Prepare the journal entry for Play Clothes.2021年10月16日星期六23Transportation Costs on PurchasesTransportation costs related to the acquisition of assets are part of the cost of the asset being acquired.2021年10月16日星期六24Recording Transportation Cost

18、slTransportation costs are the cost of moving inventory from seller to buyer.lFOB stands for Free on Board and governs the passing of title of the goods.lSelling/buying agreements usually specify FOB terms.2021年10月16日星期六25Recording Transportation CostsFOB Shipping PointFOB Destination2021年10月16日星期六2

19、6Freight Charges ExamplelAssume that on May 9 the Sporting Store paid $60 for freight.lWhat is the journal entry? May 9 Dr. Inventory 60 Cr. Cash 60 Paid a freight bill2021年10月16日星期六27Inventory Costing Methods(Cost Flow Assumptions)lSpecific identification.lAverage cost.lFIFOlLIFO2021年10月16日星期六28Spe

20、cific IdentificationBig ticket (high price) items.Uniquely identified items. May offer opportunity to manipulate costs.2021年10月16日星期六29Average CostAverage cost flow assumption assigns the same average cost to each unit.salefor available unitspurchases +amount inventory Beginning=sold goods ofcost un

21、it per 2021年10月16日星期六30First-in, First-out (FIFO) the units sold are the oldest units on hand. During a period of inflation or rising prices, the use of FIFO method will result in a greater amount of net income than the other methods. In a period of deflation or declining prices, the effect is rever

22、sed, and the FIFO method yields the lowest amount of net income. 2021年10月16日星期六31Last-in, First-out (LIFO)Assumes most recently purchased goods are sold first During a period of rising prices, the use of LIFO method will result in a less amount of net income than the other methods. In a period of de

23、flation or declining prices, the effect is reversed, and the LIFO method yields the highest amount of net income. 2021年10月16日星期六322021年10月16日星期六33Why Not More LIFO? IASB and most countries do not permit. Reasons of elimination: It does not match the usual flow of goods in a business. LIFO results in

24、 old values on the balance sheet and can yield very strange COGS numbers when inventory levels decline. 2021年10月16日星期六34The Principle of ConsistencyOnce a company has adopted a particular accounting method, it should follow that method consistently, rather than switch methods from one year to the ne

25、xt.2021年10月16日星期六35Valuation Using LCM MethodReduces the value of the inventory.general movements in supply and demand, damage or obsolescenceAdjust inventory value to the lower of historical cost or Net realizable value (market).Reporting inventory at the lower of Cost or Market (LCM)2021年10月16日星期六

26、36Lower of Cost or Market (LCM)v Market price may be below cost due to: Physical deterioration. Change in consumer tastes. Technological obsolescence.v LCM is a reflection of conservatism concept.v Market is defined as net realizable value2021年10月16日星期六37Net realizable value (NRV)NRV = estimated sel

27、ling price - estimated costs of selling.So inventory not above cash that will be received.2021年10月16日星期六38Steps in Applying LCMCompute market, Select lower of cost or market.2021年10月16日星期六392021年10月16日星期六40Transactions Relating to SalesCredit terms and merchandise returns affect the amount of revenu

28、e earned by the seller.2021年10月16日星期六41Sales On August 2, Kids Clothes sold $2,000 of merchandise to Play Clothes on credit terms 2/10, n/30. Kids Clothes originally paid $1,000 for the merchandise.Kids Clothes must make two entries.GENERAL JOURNALDateAccount Titles and ExplanationPR DebitCreditAug.

29、2 Accounts Receivable (Play Clothes)2,000Sales2,0002021年10月16日星期六42SalesOn August 2, Kids Clothes sold $2,000 of merchandise to Play Clothes on credit terms 2/10, n/30. Kids Clothes originally paid $1,000 for the merchandise.Kids Clothes must make two entries.GENERAL JOURNALDateAccount Titles and Ex

30、planationPR DebitCreditAug.2 Cost of Goods Sold1,000Inventory1,0002021年10月16日星期六43Sales Returns and AllowancesOn August 5, Play Clothes returned $500 of unsatisfactory merchandise to Kids Clothes from the August 2 sale. Kids Clothes cost for this merchandise was $250.Kids Clothes must make two entri

31、es.Contra-revenue2021年10月16日星期六44Sales Returns and AllowancesOn August 5, Play Clothes returned $500 of unsatisfactory merchandise to Kids Clothes from the August 2 sale. Kids Clothes cost for this merchandise was $250.Kids Clothes must make two entries.GENERAL JOURNALDateAccount Titles and Explanat

32、ionPR DebitCreditAug.5 Inventory250Cost of Goods Sold2502021年10月16日星期六45Sales DiscountsOn July 6, Kids Clothes sold $4,000 of merchandise to Play Clothes on credit with terms of 2/10, n/30. The merchandise originally cost Kids Clothes $2,000.Kids Clothes must make two entries.GENERAL JOURNALDateAcco

33、unt Titles and ExplanationPR DebitCreditJuly6 Accounts Receivable (Play Clothes)4,000Sales4,0002021年10月16日星期六46Sales DiscountsOn July 6, Kids Clothes sold $4,000 of merchandise to Play Clothes on credit with terms of 2/10, n/30. The merchandise originally cost Kids Clothes $2,000.Kids Clothes must m

34、ake two entries.GENERAL JOURNALDateAccount Titles and ExplanationPR DebitCreditJuly6 Cost of Goods Sold2,000Inventory2,0002021年10月16日星期六47Sales Discounts$4,000 98% = $3,920Contra-revenueOn July 15, Kids Clothes receives the full amount due from Play Clothes. Prepare the journal entry for Kids Clothe

35、s.2021年10月16日星期六48Sales DiscountsGENERAL JOURNALDateAccount Titles and ExplanationPR DebitCreditJuly 20 Cash4,000Accounts Receivable (Play Clothes)4,000Now, assume that it wasnt until July 20 that Kids Clothes received the full amount due from Play Clothes. Prepare the journal entry for Kids Clothes

36、.2021年10月16日星期六49Delivery ExpensesDelivery costs incurred by sellers are debited to Delivery Expense, an operating expense.2021年10月16日星期六505.8 Inventory estimation method2021年10月16日星期六51The Gross Profit MethodDetermine cost of goods available for sale.Estimate cost of goods sold by multiplying the net sales by the cost ratio.Deduct cost of goods sold from cost of goods available