AUDIT OF INVENTORY Detailed Composition of the Value of Inventory

AUDIT OF INVENTORY
DICTIONARY  AUDIT
Does not OF necessarily
INVENTORY mean that you would
apply the exact same adjustments you
PERPETUAL
PROBLEM 3-3 3-4INVENTORY
NOTES SYSTEM FORMULA
encountered on adjusting entries for
FORMULAS
PROBLEM
 Billed
 DateTEST
CUT-OFF 3-9 –
shipped date you
FOR–PURCHASES recorded an
ito yung date na binura na Problem AR which Purchases
Audit of3-7,Journal
Inventory
3-10 for Manufacturing
 have
You means
Something
sa libro
to find the
ang date
that
out you
needs
inventory
which recorded
to na-ship
dahil
inventory get
should Salesbe: (my
revisited
na. Sa  Companies
This is the
CREDIT SALES (with
one -> application
recorded
Accounts of three
onReceivable
inventory
theory
 (involvement
date
Not includedonly)
shipped, ofbut concepts from
edi mababawasan
should Correction
be included in of sheets
na inventories
1.Credit
Purchases (iyun
Sales– DM, ang i-a-adjust
– ifDL, FOH)sa3-12
sinabi natin)
problem na all
Errors) o
inventory. AR
the current period inventory xx  There
sales may
are be
credit
 Inventory, beg inventories
sales na adjustment xx
  Ending inventory
oo Hindi
Included butito
Sales vs. not
necessarily
should Net xx beincome
kasabay
included inpag- Mga
–sadirect sa purchases
pwede
 Add:
AR,Cost endjournal
ipahanap of Goods pero
sa kung recorded
problem:
Sold xxxx
relationship
the current record periodng sale.inventory(It doesn’t necessarily  Materials naman COGAS na sa inventory
Inventory
Add: Collections sheets, hindi xxna
xx
 Purchases mean
Adjustments to purchase vs. that Net
the Income
date of –
shipment inversewill needo isama
Assumed sa adjustment.
inventory xx
  Less:
Less:Inventory,
AR, beg end xxxx
relationship
Process
ADJUSTING coincide
of purchase
ENTRIES withONrecognition
invoice –of means
PURCHASES AND the  Adjustments:
sale). o Direct
  Purchases
Credit sales labor included (xx)
xxxx
ACCOUNTStimeo when ItPAYABLE
onlyyou coincides
already with havedate of salethe
recorded if o Those o FOH thatincluded
are not yet recorded and only (xx)
FIFO Costing
Rememberpurchase of
that
the Inventory
(dapat
the
shipmentdates(Problem
sa tamang
is
givenFOB 3-14)
period)
areshipping
the dates received
point 2.PURCHASES BEYOND the given datexx sa
of Goods->Sold
o Materials
Cost Accounts
invty Payable
 The
where unit (transfer
Unrecorded
the cost ofshipping
FOB inventory
purchase
of title alreadyduring
– purchased
point January
and
occurs FOB 2018FOB
upon problem (which is December 28 daw)
was 65.20 and increased P0.20 per month o Inventory,
AP, end
Add: Purchases
Until December beg xx
28 daw yung xx
xx
na-
shipping
destination point pero next period pa nirecord si
isshipment)
dependent: o
 Add: Add:
Less: Payment
DL,
Purchases FOH, to Suppliers
Obs. xx xxxx
xx
o Use the M+ and MRC feature in account na inventory worth
 purchase.
FOB o Shipping
It does notpoint coincide with date ofonsale
– dependent  o COGAS
Less: AP,
Scrap lossbeg xxxx
xx
calculator if there are just the same Php300,000.
invoice if thedateshipment is FOB destination. o Less:
Purchases
Materials
So allInventory, invty,end
inventories end received beyond xx
xx xx
Adjustments number of units purchased per year
o to Assales I haverevenue observed, those that are Dec. 28 but before the next period
 Direct
CGS Labor in Inventory xx

 Sales
Date invoice
recorded
invoiced was
–ng processed
ito
2018 yung date
pero –na-receive
it just
na means APPLICATION
ni-record should be OF GROSS
added. METHOD
NOTES ABOUT LCNRV (PROBLEM 3-12)  Okay
that
yung the langsale
sale. ng was recorded
2019 ay ni-record (sa na problem,
as of There
 Be careful
aalamin o Sale mo
when
kung
is only
there’s
correct
recorded ba
a GROUP
or incorrect
kung officialna INVENTORY
 are Refer
Factory timestoFIRE
Overhead na LOSS
date received.
may– clues usuallyna ibibigay
ang basis
inventory
models/products/goods. ng 2018. It means that o Those
sa problems that likeare invoiced
this: beyond Dec. 28
nirecord ang sale) nito ay FOH rate x Direct Labor
the
nang date of
nag-transfer invoice ang is considered
title kay buyer. and May
even problems
forbefore
Cash ifDec. na given yung account
o Malox applies the lower of cost or net
 Sale recorded also  asFOB ain dateerrorof –shipment
shipping ito yung(my
point goods  narereceiveClues
Again, consider to 28 pero inventory
which di pa
realizable value method to each three balances
o Operating (dahilbeforeFOB yung
shipping
expensesang month
arepoint)
paid na
shipped theoryFOBonly) destination tapos next period accountnangyari i-cha-charge
yung sunog mga
types of shifters  Inventory – tanggalin mo should also be cash
recorded
sumusunod: with
 mo FOB padestination
na-deliver –kay na
o Although iba-iba ang amount of cost and
customer
dependent
upon shipmenton pero
date(at nag-
all  Which o Tapos
means kunyari
na cash kalagitnaan
hindi mo langng
process ka na ng sales invoice during the oo Obsolete
All sales are materials sales
– siyempre
received NRV ng bawat times) model, pwede sabihin sa titingnanmonth kung nangyari
lagpas bayung sunog
ng Dec. 28.
period (meaning nagrecord ka na ng sale Maski
o o materials
Payment
So
January yung to
iyan
suppliers
period na
nareceive, walang
pero
o problem
The titlenaofyungyour
Sale purchase
total– ng i-record will
cost ormoonlyNRV na
pero ang hindi pa dapat) so deduct from sales kungoo Scrap
Collection
FOBrecords lossof
shipping(ex. NR
– point
charged
April and 1-15) tona-ay
__.
transfer to you
agad upon
basis and hindi yung individualdate receipt
of shipment
of
revenue goods under pa
thislang FOB. o (sasabihin
Collection
invoice icocompute of
sa
ng within before AP
problem)
mo pa Dec. ng28bukod or
model under 1 group of models.
 Unrecorded
o So total  FOB sale
na lang – ito
destination yung goods
ang basis mo, not the shipped  Cluesafter Dec. fortapos
Accounts
28, isama
i-a-add Payable
mo.mo sa given
during
DICTIONARY the period
individual component. FOB shipping
 Inventory – tanggalin mo point pero o All purchases
account balance of inventory are
hindi
 Invoice pa
o However, na-record
cost – itokung ang
yung
na upon sales invoice
cost shipment
silent ngnaman so
inventoryang add
DICTIONARY made on account
to sales
pero problem, revenue
di pa kasama  Inventory
OTHER NOTESSheets
 Mga pwede ipahanap – ito yung libro ng
sa problem:
 Saledito
inidivdual basis angang cost
– i-record mo oflang
pagpili ng
freight (freight-in) upon
LCNRV. inventory
 Purchases
o Total costand Invty, End –
of purchases
reaching the
Income Effect of Inventory
o If there is a given Errors rate for freight  Recording kailangan of provisional
 Nasa itaassila;
tugma liability
if may
ang formula
customer’s domicile
Issue on for Purchase (estimated freight-into
overstatement saliability)
invty (ex.forRecorded
those
Allowance in, ditoFOB
Inventory mo shipping(AIW)
Writedown
i-multiply. point
(upon date of delivery) o Payment suppliers
3-21
imagine Notes na nag-transfer
purch. – na
FOB angdest. title sa
Pero iyo
next (FOB
period
 applying
Freight here
Invoice in
date the
– ito concept
– yung
same of ADA
sinasama
lang sa date and
sa costbad debts
of
recorded shipping pa point)
 Purchases
nadeliver)during –current
kung period
dineduct
xx
pero mo
 The
expense. basis
purchases.
actually. of recording
Hence, a the inventory
capitalizable on
cost which  Add: AP, beg xx
period for purposes of correction of net next year from mopurchases,
pa na-receive ideductang goods
mo din from
of inventory. o Current
Inventory, period:
Less: You
End. AP end are xx
already
 AIW,income enddepends – there issa anperiod
allowance of for inventory
recording the
 Adjusted
FORMULAS >>>> inventory – ito yung kasama na  Pymnt to sup. xx
writedown
purchase because assets should not be invoiced
yung cost
1.carried
Cash sales of freight-in. o Next o Number period: ofYou unitsare soldabout to
in excess of amounts expected to be
realized
Purchases
 Cash, from journal
beg.
their sale; – data
just like na having
ipinakita
xx an ADA in receive the  goods;
Usuallyand ay about
may to given
pay
PURCHASESorder to-> adjust
Accounts the Payable
AP account and na unit price
 Collection, NR xx the freight.
o inWhat
AP forifaccounts
Purchases silent
account angthat problem
are uncollectible.kung kailan ni- o AP Balance
 Cost
o Payment to sup (xx) xx o Assumption: Date of receipt of
record ang purchase invoice? Assume na
o Operating
hindi Net Realizable
na-i-record expenses Value (NRV) (xx) xx goods is also the date of payment
o Cash
Required sales AIW,(squeeze)
end xx xx (recording) of freight
o
So i-addmoCash, sa accounts end payable xx
 AdjustmentNOTES IN AUDITINGin AIW AND ASSURANCE: CONCEPTS & APPLICATIONS |BY: JOSHUA J. LISING | COLLEGE OF ACCOUNTANCY
o Allowance balance > Required AIW =
Gain on inventory recovery