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Chapter 19 Inventory Accounting

Accounting for Hospitality Managers Fifth Edition (362TXT or 362CIN)

2007, Educational Institute

Competencies for Inventory Accounting


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Describe how inaccurate inventory records can affect the financial statements. Explain the gross profit method of estimating inventory levels. Explain the basis of accounting for inventory, and differentiate between inventory valuation approaches according to their emphasis on product flow or cost flow. Describe the specific identification approach to inventory valuation. Explain the FIFO approach to inventory valuation and how it differs from the specific identification approach.
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2007, Educational Institute

Competencies for Inventory Accounting


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Describe the LIFO approach to inventory valuation, and compare it with the FIFO approach. Describe the weighted average approach to inventory valuation and how it differs from the approaches previously discussed. Compare the three cost flow approaches to inventory valuation with respect to cost of sales and ending inventory. Summarize the benefits and drawbacks of the LIFO approach.
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2007, Educational Institute

Weighted Average
Weighted Average = Total Cost of Inventory on Hand Total Units in Inventory

2007, Educational Institute

LIFO Advantages/Disadvantages
Advantages
Better measure of income Income tax benefits

Disadvantages
Lower figure for income Lower figure for inventory on balance sheet Income tax benefits not guaranteed Impractical for fast-turnover F&B inventories
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2007, Educational Institute