Chapter 10

Inventories
Merchandise
Land and other property held for resale by a real estate developer
Finished Goods
Goods in Process
Raw Materials
Factory Supplies and Manufacturing Supplies – indirect materials
Paint and Nails
Goods at hand
Goods in Transit, sold FOB D
Goods in transit, purchased FOB SP
Goods on consignment
Goods in the hands of agent or salesmen
Goods held by customer on approval or trial
FAS – free alongside – buyer if on SP na
CIF – cost, insurance, freight – buyer if on SP na
Ex-ship – seller all
Cost of Inventories

Cost of Purchase
Purchase Price
Import Duties
Irrecoverable Taxes
Freight
Handling and other costs dir. attributable to acq. of FG, materials and services

Cost of Conversion
Direct Labor
Fixed and Variable Overhead – incurred in converting materials in Finished Goods
Fixed Production Overhead – indirect cost of production (depreciation, maintenance of factory building
and eqpt, cost of factory mgt and admin)
Variable production overhead – indirect cost of production that varies with the volume of production

Other Cost
Cost of designing product for specific customers in the cost of inventories
Storage cost on goods in process – costs necessary in the production process prior to a further
production stage
 Chapter 11
Cost Flows
FIFO – stated at current replacement cost. Problem: understatement of cost of sales. Inflation =
Highest net income. Deflation: Lowest Net Income

WAM – Periodic = TGAS / Total units avail

Moving Average = Every Purchase and returns nay changes sa price

LIFO – favors matching of current revenue and expense. Inflation = lowest Deflation = highest

Chapter 12
LCNRV
Item by item or individual basis.
If NRV > C = OK no changes
If NRV < C = Inv @ nrv
DM or COGS method = Deducted allowance
Purchase Commitments

Obligation of entity to acquire certain goods sometimes in the future at a fixed price and fixed quantity.
If there is decline in purchase price after a purchase commitment, there is record of loss in the period of
decline.
NON CANCELABLE.
For Loss:
Loss on Purchase Commitment
Estimated Liability for Purchase Commitment
 Chapter 13
Gross Profit
Based on the assumption that the rate of gross profit remains approximately the same from period to
period and therefore the ratio of COGS to Net Sales is relatively constant from period to period.
NET SALES =Gross Sales – Sales Return

Gross Sales = Cash Sales + Credit Sales

Beg. Bal. Accounts Receivable

Credit Sales

(Collection)

(Sales Return)

(Write Off)
(Ending Bal. of Accounts Receivable)
NET PURCHASES = Gross Purchases – Purchase
Returns – Purchases Balance of Credit Sales Discount and Allowances

Gross Purchases = Cash Purchases + Credit

Purchases

Beg. Bal. Accounts Payable

Credit Purchases (Giutang na goods)
(Payments [Gibayad sa utang])
(Ending Bal. Accounts Payable)
Balance of Credit of Purchases

Gross Profit of Sales to Cost = GP based on Sales / Percentage of COGS

Gross Profit of Cost to Sales = GP based on Cost / Percentage of Sales

 Chapter 14
Retail Inventory

COST RETAIL
Beg. Inv xx xx
Purchases xx xx
Purchase Return (xx) (xx)
Purchase Allowance (xx)
Purchase Discount (xx)
Freight In xx
Dept. Transfer In (Debit) xx xx
Dept. Transfer Out (Credit) (xx) (xx)
Abnormal Shortage (xx) (xx)
Markup xx
Markup Cancelation (xx)
Markdown (xx)
Markdown Cancelation   xx
Goods Available for Sale (GAS) xx xx
Sales (xx)
Sales Return xx
Employee Discount (xx)
Normal Spoilage (xx)
Ending Inv. at Retail xx

A. Conservative Approach

GAS at COST
Cost of Ending Inventory= × Ending Inventory at Retail
GAS at RETAIL+ Net Markdown

Cost of Goods Sold =GAS at COST −Cost of Ending Inventory at Conservative

B. Average Cost Approach

GAS at COST
Cost of Ending Inventory= × Ending Inventory at Retail
GAS at RETAIL

Cost of Goods Sold =GAS at COST −Cost of Ending Inventory at Average

C. FIFO Approach

GAS at COST −Beg . Inv at COST

Cost of Ending Inventory= × Ending Inventory at Retai l
GAS at RETAIL−Beg . Inv at Retail
Cost of Goods Sold =GAS at COST −Cost of Ending Inventory at FIFO