Chapter F8 Power notes Inventories Learning Objectives 1. Internal control of inventories 2. Effect of Inventory Errors C8 3. Inventory Cost Flow Assumptions 4. Perpetual Inventory Costing Methods 5. Periodic Inventory Costing Methods 6. Comparing Inventory Costing Methods 7. Inventory Valuation Other Than Cost 8. Balance sheet Presentation of merchandise 9. Estimating Inventory Cost 10. Financial Analysis and Interpretation c8-1
C8 - 1 Learning Objectives Power Notes 1. Internal Control of Inventories 2. Effect of Inventory Errors 3. Inventory Cost Flow Assumptions 4. Perpetual Inventory Costing Methods 5. Periodic Inventory Costing Methods 6. Comparing Inventory Costing Methods 7. Inventory Valuation Other Than Cost 8. Balance Sheet Presentation of Merchandise 9. Estimating Inventory Cost 10. Financial Analysis and Interpretation Chapter F8 Inventories C8
Chapter F8 Power notes Inventories Slide #f Power Note Topics 3. Inventory Control and Relationships 7. Perpetual Inventory Accounting 23. LIFO and FIFo CoSt Flow Assumptions 31. Inventory at Lower-of-Cost-or-Market 33. Retail and Gross Profit Methods 37. Inventory Turnover Ratio [ y Note: To select a topic, type the slide and press Enter c8-2
C8 - 2 • Inventory Control and Relationships • Perpetual Inventory Accounting • LIFO and FIFO Cost Flow Assumptions • Inventory at Lower-of-Cost-or-Market • Retail and Gross Profit Methods • Inventory Turnover Ratio Slide # Power Note Topics 3 7 23 31 33 37 Chapter F8 Power Notes Inventories Note: To select a topic, type the slide # and press Enter
Why is Inventory Control Important? Inventory is a significant asset and for many companies the largest asset Inventory is central to the main activity of merchandising and manufacturing companies. Mistakes in determining inventory cost can cause critical errors in financial statements Inventory must be protected from external risks( such as fire and theft )and internal fraud by employees c8-3
C8 - 3 Why is Inventory Control Important? Inventory is a significant asset and for many companies the largest asset. Inventory is central to the main activity of merchandising and manufacturing companies. Mistakes in determining inventory cost can cause critical errors in financial statements. Inventory must be protected from external risks ( such as fire and theft) and internal fraud by employees
Inventory Costs and Relationships LIABILITIES Merchandise ASSETS OWNER'S Inventory EQUITY Net Income Cost of cosTS REVENUES Mdse sold EXPENSES If merchandise inventory is.... overstated Cost of merchandise sold is understated Gross profit and net income are overstated Ending owner's equity is. ,... overstated c8-4
C8 - 4 LIABILITIES OWNER’S EQUITY REVENUES ASSETS COSTS & EXPENSES Inventory Costs and Relationships Merchandise Inventory Cost of Mdse. Sold If merchandise inventory is . . . . . . . overstated Cost of merchandise sold is . . . . . . Gross profit and net income are . . . Ending owner’s equity is . . . . . . . . . understated overstated overstated Net Income
Inventory Costs and Relationships LIABILITIES Merchandise ASSETS OWNER'S Inventory EQUITY Net Income Cost of cosTS REVENUES Mdse sold EXPENSES If merchandise inventory is understated Cost of merchandise sold is overstated Gross profit and net income are understated Ending owner's equity is understated c8-5
C8 - 5 LIABILITIES OWNER’S EQUITY REVENUES ASSETS COSTS & EXPENSES Inventory Costs and Relationships Merchandise Inventory Cost of Mdse. Sold If merchandise inventory is . . . . . . . understated Cost of merchandise sold is . . . . . . Gross profit and net income are . . . Ending owner’s equity is . . . . . . . . . overstated understated understated Net Income