HI5001 Lecture 7 Version 3

HI5001 Accounting for Business Decisions
Lecture 9
Inventories
Click to edit Master title style
Overview
Lecture Lecture Topic Readings/Preparation
1 Role of Accounting for Decision Making Textbook Chapter: 1
2 Financial Statements & Decision Making Textbook Chapter: 2
3 Recording Business Transactions Textbook Chapter: 3
4 Adjusting Entries & Preparing Financial Statements Textbook Chapter: 4
5 Completing The Accounting Cycle Textbook Chapter: 5
6 Accounting Systems Textbook Chapter: 7
7 Cash Management & Control Textbook Chapter: 11
8 Receivables Textbook Chapter: 12
9 Inventories Textbook Chapter: 6 & 13
10 Non-current Assets Textbook Chapter: 14 & 15
11 Liabilities Textbook Chapter: 16
12 Analysis & Interpretation of Financial Reports Textbook Chapter: 19
Applied Business Statistics for Managers Holmes Institute

Overview
Lecture 8 Lecture 9
B
Receivables Inventories
B
b
Illegal

Topics
Click toCovered In This
edit Master titleLecture
style
Here’s what you will learn from this lecture:
1 Nature of Inventory
2 Account for sales transactions of retail businesses
3 Accounting for purchases & cost of sales - perpetual inventory system
4 Accounting for purchases & cost of sales - periodic inventory system

Topics
Click toCovered In This
edit Master titleLecture
style
Here’s what you will learn from this lecture:
5 End of period processes
6 Assignment of cost to ending inventory & COS – periodic system
7 Assignment of cost to ending inventory & COS – perpetual system
8 Lower of cost and net realisable value rule

Introduction
Service Manufacturing Wholesale Retailing

Businesses Businesses Businesses Businesses

Click to edit
Inventory in Manufacturing
Master title style
Businesses
Manufacturing Businesses
Raw material Work in progress Finished product

Click to edit
Inventory in Manufacturing
Master title style
Businesses
Furniture manufacturer
Saw –
Fixed
Asset
Wooden log -
Inventory

Click to edit
Inventory in a
Master
Construction
title style
Company
Construction Company
Construction
Apartment -
Equipment –
Inventory
Fixed Asset

Click to edit
Inventory in a
Master
Restaurant
title style
Restaurant
Table/Chair
Food - – Fixed
Inventory Asset

Click to edit
Inventory in a
Master
Retailing
title Business
style
Retailing Businesses
Ordinary
Inventory most Significant part
Retail Store active assets of total assets

Click to edit for
Accounting Master
Retailing
title style
• Goods or property held for sale in the ordinary course of

business
• Does not include assets acquired to operate the business
(e.g. plant and equipment)
• Also referred to as ‘stock’ or ‘stock in trade’
• Determination of profit is a major objective of accounting for
inventory
• In a retail business, inventory
➢ Is one of the most active assets
➢ Can make up a significant part of total assets

Click to edit for
Accounting Master
Inventory
title style
for a Retailer
Balance sheet
Assets Equity
Share Capital
Current Assets
- Cash Retained
- Receivables Earning
- Inventory
Liabilities
Illegal
Fixed Assets Current

liability
Non-current
liability

Click to Statement
Income edit Masterfor
title
a Retailer
style
• Income referred to as ‘sales’
• ‘Cost of sales’ (COS) used to show total cost of inventory sold
during the period
• Gross Profit (Sales – COS) is determined to show profit from
selling inventory
• Expenses classified by function:
o Selling and distribution expenses.
o Administrative expenses.
o Finance expenses.

Click to Statement
title
a Retailer
style
Example – Cost of Sales
Beginning Ending
Purchased inventory
inventory
$35,000 $18,000
$20,000
Cost of
sales

Click to Statement
title
a Retailer
style
Example – Cost of Sales
Beginning Ending
Purchased inventory
inventory
$35,000 $18,000
$20,000
Cost of Sales
$37,000

Example - Simplified
Click to income
edit Master statement
title style for a retail business
Condensed Income Statement for a Retailer
SUNRISE CD SALES LTD
Income Statement
for the year ended 31 December 2015
INCOME
Net sales revenue $692,890
Less: Cost of sales 470,490
GROSS PROFIT $222,400
Other income 5,260
TOTAL INCOME $227,660
EXPENSES
Selling & Distribution $100,270
Administrative 78,850
Finance & Others 4 ,260 183,380
PROFIT (before income tax) $ 44,280

Click to edit Master
Pause Point 1title style
Pause the lecture here and take a few moments to check your learning.
• Inventory is the term used in retail operations to refer to goods or property

purchased and held for sale in the operating cycle of the business.
• How is gross profit determined?
• How are expenses normally grouped in income statement for a retailer?

Accounting
Click to editfor title style – Credit sales
Sales Transactions
Master
Entry for credit sales
Non-GST version:
August 5 Accounts receivable 1,800
Sales revenue 1,800
Sold merchandise on credit to R. Stevens
GST version:
August 5 Accounts receivable 1,980
Sales revenue 1,800
GST Collections 180
Sold merchandise for cash

Accounting
Click to editfor Sales Transactions
Master title style - Sales Returns
Entry for Sales Returns & Allowances:
Goods sold on account for $300 returned as unsuitable
Non-GST version:
August 8 Sales returns & allowances 300
Accounts receivable 300
Return of unsatisfactory merchandise sold on credit by R. Stevens
GST version:
August 8 Sales returns & allowances 300
GST Collections 30
Accounts receivable 330
Return of unsatisfactory merchandise sold on credit by R. Stevens

Accounting
Click to editfor Sales Transactions
Master title style
Entry for Cash (Settlement) Discounts
Discount given if buyer pays within the settlement period.
E.g. Goods sold on credit on 2 Aug for $1000 with a credit term of 2/10 n/30. If payment was
received on 10 August:
Non-GST version: August 10 Cash at bank 980

Discount allowed 20
Accounts receivable – A. Jones 1,000
Payment of account within the discount period
GST version: August 10 Cash at bank 1,078

Discount allowed 20
GST Collections 2
Accounts receivable – A. Jones 1,100
Payment of account within the discount period
Accounting
Click to editfor Purchases
Master and Cost of Sales
title style
Inventory Accounting
Cost of
sales
Ending
Inventory

Accounting
title style
• Accounting for inventory involves

• Recording cost of purchased inventories
• Determining which part of inventory can be allocated to
• Cost of sales
• Ending inventory
• 2 distinctly different inventory systems
• Perpetual inventory system
• Periodic inventory system

Accounting
title style
Systems for inventory accounting
Perpetual Periodic
inventory inventory
system system

Perpetual
Click Inventory
to edit MasterSystem
title style
Perpetual inventory system
Provides Maintains
continuous record for
record of each item of
transaction inventory
Ordinary
Records Controls inventory
inventory account in
collectively general ledger

Perpetual
Click Inventory
title style
• Involves keeping current and continuous records of all

inventory transactions
• Separate card or computer file kept for each inventory item
• Quantity and unit cost for each sale/purchase
• Running inventory balance

Perpetual
Click Inventory
title style
Inventory record card
Location
Item: Refrigerator 1 unit showroom Minimum Stock 4
Code: C350 Remainder - Warehouse Maximum Stock 17
Purchases Sales Balance
Unit Total Unit Total Unit Total

Date Explanation Units cost cost Units cost cost Units cost cost
1/1 Beg. balance 4 650 2,600

15/1 Purchases 10 650 6,500 14 650 9,100
21/1 Sales 3 650 1,950 11 650 7,150
23/1 Purchase Return (1) 650 (650) 10 650 6,500
24/1 Sales Return (1) 650 (650) 11 650 7,150

Perpetual
Click Inventory
title style
Single general ledger account for all inventory transactions – Inventory
Inventory
Increases (debits) Decreases (credits)
Purchases Sales
Sales returns Purchases returns

Perpetual
Click Inventory
title style
Illustration of transactions in a perpetual inventory system:
1. Recording purchases of inventory on credit
- purchased 10 refrigerators from the manufacturer
Non-GST January 15 Inventory 6,500

version: Accounts payable 6,500
Purchased 10 refrigerators from JB Ltd. Terms 2/10, n/30
January 15 Inventory 6,500

GST version: GST Outlays 650
Accounts payable 7,150

Perpetual
Click Inventory
title style
2. Recording sales on credit – sold 3 refrigerators for $1050 per unit
January 21 Accounts receivable 3,150

Non-GST Sales 3,150
version: Sold 3 refrigerators on credit
January 21 Cost of sales 1,950
Inventory 1,950
Removing cost of 3 refrigerators sold from inventory

Sales 3,150
GST version: GST Collections 315
Sold 3 refrigerators on credit
January 21 Cost of sales 1,950
Inventory 1,950
Removing cost of 3 refrigerators sold from inventory
Perpetual
Click Inventory
title style
3. Recording purchases returns
– returned 1 refrigerator to the manufacturer as it’s a defective unit
Non-GST January 23 Accounts payable 650

version: Inventory 650
Defective unit returned for credit
January 23 Accounts payable 715

GST version: Inventory 650
GST Outlays 65

Perpetual
Click Inventory
title style
4. Recording payment of creditors within discount period
- Paid for purchase made on 15 January within the discount period, after purchase returns
on 23 January
Non-GST January 24 Accounts payable (6,500 – 650) 5,850

version: Cash at bank 5,733
Discount received (5,850 x 2%) 117
Paid for inventory purchased on 15 January
January 24 Accounts payable (7,150 - 715) 6,435

Cash at bank 6,306
GST version: Discount received (6,435 x 2% x 10/11) 117
GST Outlays (6,435 x 2% x 1/11) 12

Perpetual
Click Inventory
title style
5. Recording sales returns and allowances
– a refrigerator that was sold on 21 Jan for $1050 is returned by a customer
January 24 Sales returns & allowances 1,050
Non-GST Accounts receivable 1,050
version: Refrigerator sold on 21 Jan returned by customer
January 24 Inventory 650
Cost of sales 650
Returned refrigerator was placed back in inventory

GST Collections 105
GST version: Accounts receivable 1,155
Refrigerator sold on 21 Jan returned by customer
January 24 Inventory 650
Cost of sales 650
Returned refrigerator was placed back in inventory

Periodic
Click Inventory
to edit System
Master title style
Systems for inventory accounting
Perpetual Periodic
inventory inventory
system system

Periodic
Click to Inventory System
edit Master title style
• Beginning balance of inventory not changed until the end of

the period
• Purchases recorded in a ‘purchases’ account
• Only one entry is made for sales to record the selling price of
the goods sold
• Cost of sales is calculated
• Ending balance determined by stock count

Periodic
Click Inventory
to edit System
Master title style
Illustration of transactions in a periodic inventory system:
1. Recording purchases of inventory on credit
- purchased 10 refrigerators from the manufacturer
Non-GST January 15 Purchases 6,500

version: Accounts payable 6,500
January 15 Purchases 6,500

GST version: GST Outlays 650
Accounts payable 7,150

Periodic
Click Inventory
to edit System
Master title style
2. Recording sales on credit
– sold 3 refrigerators for $1050 per unit

Non-GST Sales 3,150
version: Sold 3 refrigerators on credit
GST version: January 21 Accounts receivable 3,465

Sales 3,150
GST Collections 315
Sold 3 refrigerators on credit

Periodic
Click Inventory
to edit System
Master title style
3. Recording purchases returns
– returned 1 refrigerator to the manufacturer as it’s a defective unit
Non-GST January 23 Accounts payable 650
version: Purchases returns & allowances 650
January 23 Accounts payable 715

GST version: Purchases returns & allowances 650
GST Outlays 65

Periodic
Click Inventory
to edit System
Master title style
4. Recording payment of creditors within discount period
– Paid for purchase made on 15 January within the discount period, after purchase
returns on 23 January
Non-GST January 24 Accounts payable (6,500 – 650) 5,850

version: Cash at bank 5,733
Discount received (5,850 x 2%) 117
January 24 Accounts payable (7,150 - 715) 6,435

Cash at bank 6,306
GST version: Discount received (6,435 x 2% x 10/11) 117
GST Outlays (6,435 x 2% x 1/11) 12

Periodic
Click Inventory
to edit System
Master title style
5. Recording sales returns and allowances
– a refrigerator that was sold on 21 Jan for $1050 is returned by a customer
Non-GST January 24 Sales returns & allowances 1,050

version: Accounts receivable 1,050

GST Collections 105
GST version: Accounts receivable 1,155

Perpetual & Periodic
Click to edit MasterInventory
title styleSystems Contrasted
Perpetual inventory system
FRIDGE TOWN
Income Statement
for the period ended 31 January
Sales revenue $3,150
Less: Sales returns and allowances 1,050
Net sales revenue 2,100
Cost of sales* 1,720
GROSS PROFIT $ 380
* $1,720 = $1,950 – $650 + $420

Perpetual
Click to edit
& Periodic
Master title
Inventory
style Systems
Contrasted
Periodic inventory system
FRIDGE TOWN
Income Statement
for the period ended 31 January
Sales revenue $3,150
Less: Sales returns & allowances 1,050
Net sales revenue $2,100
Cost of sales
Cost of beginning inventory $2,600
Add: Cost of purchases 6,500
Freight-in 420
Total $6,920
Less: Purchase returns & allows 650
Cost of purchases 6,270
Cost of goods available for sale $8,870
Less: Cost of ending inventory 7,150
Cost of sales 1,720
GROSS PROFIT $ 380

End oftoPeriod
Click Processes
Perpetual Inventory System
• It is used to account for the flow of goods.
• The balance in the Inventory account is the ending inventory
amount.
• The cost of sales, freight inwards and discounts received are
extended along with the other temporary accounts to the
proper income statement columns.

End oftoPeriod
Click Processes
Periodic Inventory System
• Updating inventory account at end of period
o The unadjusted trial balance debit column is the beginning inventory amount.
o The accounts that affect the cost of net purchases — Purchases, Purchases
Returns and Allowances, Discount Received, and Freight Inwards.
o It is necessary to remove the beginning inventory balance and record the ending
inventory in the Inventory account.
June 30 P & L Summary 12,000

Inventory (beginning balance) 12,000
Inventory balance as per stock count
June 30 Inventory (ending balance) 10,000

P & L Summary 10,000
Inventory balance as per stock count

End oftoPeriod
Click Processes
Periodic Inventory System
The ending Inventory Close the

inventory beginning
balance is Beg. balance 12,000 P & L summary 12,000
Inventory in
recorded in End. balance 10,000 balance c/d 10,000
the first
the second 22,000 22,000 closing entry
closing entry balance b/d 10,000
Ending inventory from the previous period becomes the beginning inventory for the
next period

• Advantages and disadvantages of a Perpetual Inventory System

• Advantages and disadvantages of a Periodic Inventory System
• Understand the differences between the Perpetual Inventory System and Periodic
Inventory System
• How are transactions about sales and purchases of inventories recorded under
Perpetual and Periodic Inventory systems?

Click to edit
Assignment Master
of Cost title style
to Ending Inventory & Cost of Sales
Cost Methods
First-in,
first-out
Average Costing Specific

Cost Methods identification
Last-in,
first-out

Cost
ClickMethods
to edit Master title style
• Several methods based on different cost flow assumptions have
been suggested:
➢ Specific identification
➢ First-in, first-out (FIFO)
➢ Last-in, first-out (LIFO)
➢ Average cost
• weighted average → periodic system
• moving average → perpetual system

Illustration
Click to editExample
Master title style
Date No. of Units Unit Cost Total Cost
July 1 Beginning Inventory 10 $10 $100
Purchases made in current period
Sep 15 Purchase 12 $11 $132
Dec 7 Purchase 15 $12 $180
Total purchases 27 $312
Goods available for sale 37 $412
Sales made in current period
Sep 20 Sales 8 ? ?
Jan 12 Sales 10 ? ?
Total cost of sales 18 ?
June 30 Ending inventory 19 ?

Periodic
edit Master title -style
Specific Identification
Method
Specific Identification Method

➢ Units sold and on hand are identified with a specific invoice
➢ Consistent with the actual movement of the inventory
➢ Offers room for manipulating profit
• If 18 units sold (per previous slide), assume:

➢ 1 unit from beginning inventory ($10)
➢ 12 units from 15 September purchase ($11)
➢ 5 units from 7 December purchase ($12)

Periodic
Specific Identification
Method
Remaining inventory:
9 units Beginning inventory @ $ 10 $ 90 1/7 10 x $10 = $100
10 units 7 December 12 120 14/9 12 x $11 = #132
1/12 15 x $12 = $180
Cost of Ending Inventory $ 210 37 = $412
Cost of goods available for sale $ 412

Less: Ending inventory – 19 units 210
Cost of Goods Sold – 18 units $ 202

Periodic
edit Master title --style
First-in, first-out (FIFO)
Method
FIFO Method
1/7 10 x $10 = $100
➢ Reflects current prices in ending inventory 14/9 12 x $11 = #132
➢ Does not permit manipulation of profit 1/12 15 x $12 = $180
37 = $412
4 units 15 September @ $ 11 $ 44
15 units 7 December 12 180
Cost of Ending Inventory $ 224
Cost of goods available for sale $ 412

Less: ending inventory – 19 units 224
Cost of Goods Sold – 18 units $ 188

Periodic
Weighted Average Method
Weighted average
➢ Results in identical items being assigned the same value
➢ Tends to smooth out profit and inventory values
Average cost per unit of ending inventory 1/7 10 x $10 = $100

14/9 12 x $11 = #132
Total cost of goods available for sale 1/12 15 x $12 = $180
=
Number of units available for sale 37 = $412
= $412 / 37 units
= $11.14 per unit

Periodic
Weighted Average Method
19 units @ $11.14 $ 211.66 1/7 10 x $10 = $100
14/9 12 x $11 = #132
Cost of Ending Inventory $ 211.66 1/12 15 x $12 = $180
37 = $412
Cost of goods available for sale $ 412.00

Less ending inventory – 19 units 211.66
Cost of Goods Sold – 18 units $ 200.34

Click to
Periodic edit Master
Inventory – Comparison
Systemtitle style of Costing Methods
Comparison of costing methods:
The beginning inventory in each case is assumed to be 10 units costing $100.

Click to
Periodic edit Master
Inventory – Comparison
Systemtitle style of Costing Methods
• Specific ID
➢ Consistent with the actual movement of the inventory
➢ Offers room for manipulating profit
• FIFO
➢ Reflects current prices in ending inventory
➢ Does not permit manipulation of profit
▪ LIFO
➢ Not permitted in Australia
• Weighted average
➢ Results in identical items being assigned the same value
➢ Tends to smooth out profit and inventory values

Costing
Click toMethods in thetitle
edit Master Perpetual
style Inventory System
• Inventory record maintained for each item of inventory

• Inventory control account maintained in the general ledger
• Inventory records collectively for the inventory subsidiary
ledger
• Provides continuous record of transactions

Perpetual Inventory
Click to edit MasterSystem - FIFO Method
title style
FIFO Method
Item: Sandwich Toaster Location Minimum Stock 10

Code:B1800 Store Display Minimum Stock 30
Date Explanation Purchases Cost of sales Balance

Units Unit cost Total cost Units Unit cost Total cost Units Unit cost Total cost
1/7 Beginning balance 10 10 100
B
B
b
Ordinary
It is basically the cost at which funds have
Illegal
been arranged to procure goods, e.g.,
debenture raised or return to the investors
of the company or any expenditure in
owning or renting an asset or property

Perpetual Inventory
title style
FIFO Method


B
B
15/9 Purchases 12 11 132 b
10 10 100
Ordinary
It is basically the cost at which funds have 12 11 132
Illegal
of the company or any expenditure in

Perpetual Inventory
title style
FIFO Method


B
B
15/9 Purchases 12 11 132 b 10 10 100
Ordinary
It is basically the cost at which funds have 12 11 132
Illegal
20/9 Sales of the company or any expenditure in 8 10 80 2 10 20
owning or renting an asset or property 12 11 132

Perpetual Inventory
title style
FIFO Method


15/9 Purchases 12 11 132 B 10 10 100

B
12 11 132
b
Ordinary
It is basically the cost at which funds have
Illegal
20/9 Salesbeen arranged to procure goods, e.g., 8 10 80 2 10 20

of the company or any expenditure in 12 11 132
7/12 Purchases 15 12 180 2 10 20
12 11 132
15 12 180
Perpetual Inventory
title style

Perpetual Inventory
Click to edit MasterSystem - LIFO Method
title style

Perpetual Inventory
Click to edit MasterSystem – Moving Average Method
title style

Perpetual Inventory
Click to edit MasterSystem – Comparison of Costing
title style
Methods
Moving
Specific ID FIFO LIFO
Average
Sales revenue – 18
$360 $360 $360 $360
units
Less: cost of sales 202 188 208 197
Gross profit 158 172 152 163
Less: Expenses 120 120 120 120
Profit $38 $52 $32 $43
Ending inventory $210 $224 $204 $215

• Understand how to use each cost method in determining ending inventory balance
and cost of sales.
• Understand the impact on financial statements of inventory accounting under
different cost flow assumptions
• Why is LIFO not permitted as an acceptable method by the accounting standard?

Lower of edit
Click to CostMaster
& Net Realisable
title styleValue Rule
Net
AASB 102 realizable
value < Cost price
Basis of
Recognition & valuation
measurement
of inventory until sold

Lower of edit
Click to CostMaster
& Net Realisable
title styleValue Rule
Net realizable
AASB 102 value < Cost price
Lower
Recognition &
measurement
of inventory until sold Basis of
valuation
Selling Price less

expected completion
cost & sales costs
Lower of edit
Click to Cost Master
& Net Realisable Value Rule
title style
▪ Where selling price of inventory is lower than the cost price,

the selling price is to be used as the basis for valuation
▪ In essence, IAS 2/AASB 102 requires inventories to be
valued at the lower of cost and net realisable value.
▪ The standard defines net realisable value as the estimated
selling price in the normal course of business less the
estimated costs of completion and the estimated costs
necessary to make the sale.
▪ Current replacement cost is defined as the cost that the
not‐for‐profit entity would incur to acquire the asset at the end
of the reporting period
Key Take
Click Aways
to edit Master title style
Summary of Lecture 9
• Nature of inventory
• Account for sales transactions of retail businesses
• Accounting for purchases & cost of sales – perpetual inventory system
• Accounting for purchases & cost of sales – periodic inventory system
• End of period processes
• Assignment of cost to ending inventory & COS – periodic system
• Assignment of cost to ending inventory & COS – perpetual system
• Lower of cost and net realisable value rule

End ofto
Click Lecture 9
• Recommended Readings
Hoggett & Edwards - Chapter 6 & 13
• Tutorial Questions
Hoggett & Edwards - Chapter End Questions
• Discussion Board & Drop-in Session

Post your questions in the discussion board
• Next Lecture

HI5001 Lecture 7 Version 3

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

HI5001 Lecture 7 Version 3

Uploaded by

Copyright:

Available Formats

HI5001 Accounting for Business Decisions

Applied Business Statistics for Managers Holmes Institute

Applied Business Statistics for Managers Holmes Institute

2 Account for sales transactions of retail businesses

3 Accounting for purchases & cost of sales - perpetual inventory system

4 Accounting for purchases & cost of sales - periodic inventory system

Applied Business Statistics for Managers Holmes Institute

5 End of period processes

6 Assignment of cost to ending inventory & COS – periodic system

7 Assignment of cost to ending inventory & COS – perpetual system

8 Lower of cost and net realisable value rule

Applied Business Statistics for Managers Holmes Institute

Service Manufacturing Wholesale Retailing

Applied Business Statistics for Managers Holmes Institute

Raw material Work in progress Finished product

Applied Business Statistics for Managers Holmes Institute

Applied Business Statistics for Managers Holmes Institute

Applied Business Statistics for Managers Holmes Institute

Applied Business Statistics for Managers Holmes Institute

Applied Business Statistics for Managers Holmes Institute

• Goods or property held for sale in the ordinary course of

Applied Business Statistics for Managers Holmes Institute

Fixed Assets Current

Applied Business Statistics for Managers Holmes Institute

Applied Business Statistics for Managers Holmes Institute

Example – Cost of Sales

Applied Business Statistics for Managers Holmes Institute

Example – Cost of Sales

Applied Business Statistics for Managers Holmes Institute

Applied Business Statistics for Managers Holmes Institute

• Inventory is the term used in retail operations to refer to goods or property

Applied Business Statistics for Managers Holmes Institute

Applied Business Statistics for Managers Holmes Institute

Applied Business Statistics for Managers Holmes Institute

Non-GST version: August 10 Cash at bank 980

GST version: August 10 Cash at bank 1,078

Applied Business Statistics for Managers Holmes Institute

• Accounting for inventory involves

Applied Business Statistics for Managers Holmes Institute

Systems for inventory accounting

Applied Business Statistics for Managers Holmes Institute

Perpetual inventory system

Applied Business Statistics for Managers Holmes Institute

• Involves keeping current and continuous records of all

Applied Business Statistics for Managers Holmes Institute

Purchases Sales Balance

Unit Total Unit Total Unit Total

1/1 Beg. balance 4 650 2,600

Applied Business Statistics for Managers Holmes Institute

Single general ledger account for all inventory transactions – Inventory

Applied Business Statistics for Managers Holmes Institute

Non-GST January 15 Inventory 6,500

January 15 Inventory 6,500

Applied Business Statistics for Managers Holmes Institute

January 21 Accounts receivable 3,150

January 21 Accounts receivable 3,465

Non-GST January 23 Accounts payable 650

January 23 Accounts payable 715

Applied Business Statistics for Managers Holmes Institute

Non-GST January 24 Accounts payable (6,500 – 650) 5,850

January 24 Accounts payable (7,150 - 715) 6,435

Applied Business Statistics for Managers Holmes Institute

January 24 Sales returns & allowances 1,050