Intermediate Accounting 7 Inventories Perpetual Inventory Systems Cost of Goods sold is determined and inventory is adjusted to proper balance each time inventory is purchased or sold All purchases of inventoriable goods are recorded in the Inventory account
Perpetual Inventory Systems Intermediate Accounting 7 Inventories ➢ Cost of Goods Sold is determined and Inventory is adjusted to proper balance each time inventory is purchased or sold. ➢ All purchases of inventoriable goods are recorded in the Inventory account
Intermediate Accounting 7 Inventories Comparison of Systems Perpetual Periodic Inventory system Inventory System Beginning inventory Beginning inventory Purchases(net) Purchases(net) Goods sold Ending Inventory Ending Inventory Goods sold
Comparison of Systems Intermediate Accounting 7 Inventories Perpetual Inventory System Beginning inventory + Purchases (net) - Goods Sold = Ending Inventory Periodic Inventory System Beginning inventory + Purchases (net) - Ending Inventory = Goods Sold
Intermediate Accounting 7 Inventories 3. Items to be included in inventory quantities Economic control at the balance sheet date, and not legal ownership or physical possession, determines what items are to be included in the ending inventory
3. Items to be included in inventory quantities Intermediate Accounting 7 Inventories Economic control at the balance sheet date, and not legal ownership or physical possession, determines what items are to be included in the ending inventory
Intermediate Accounting 7 Inventories Whose Inventory /s It? Goods in inventor Goods in transit Y FOB Shipping Point: buyer's inventory from time of shipment √ FOB Destination: seller’ s inventory until receipt by buyer Goods on Consignment: inventory of the consignor. not the consignee
Whose Inventory Is It? Intermediate Accounting 7 Inventories ➢ Goods in Inventory. ➢ Goods in Transit. ✓FOB Shipping Point: buyer’s inventory from time of shipment. ✓FOB Destination: seller’s inventory until receipt by buyer. ➢ Goods on Consignment: inventory of the consignor, not the consignee
Intermediate Accounting 7 Inventories 4. Determination of inventory costs Inventory Cost is all expenditures related to inventory acquisition preparation and placement for sale v Price paid or consideration given Freight-in R eceIving Y Unpacking √ Inspecting √ Storage v Insurance v Sales and other applicable taxes
4. Determination of inventory costs Intermediate Accounting 7 Inventories ✓ Price paid or consideration given ✓ Freight-in ✓ Receiving ✓ Unpacking ✓ Inspecting ✓ Storage ✓ Insurance ✓ Sales and other applicable taxes Inventory Cost is all expenditures related to inventory acquisition, preparation, and placement for sale