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    This document discusses inventory accounting methods. It defines inventories as assets held for sale, in production, or as materials/supplies. The main inventory systems are periodic and perpetual. Periodic systems take a physical count, while perpetual systems continuously update records. Different costing methods - FIFO, LIFO, weighted average - determine cost of goods sold and ending inventory values differently. FIFO assigns earliest costs to cost of goods sold and latest to ending inventory, while LIFO does the opposite. Weighted average uses a blended rate per unit. Journal entries also differ between periodic and perpetual systems.

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    This document discusses inventory accounting methods. It defines inventories as assets held for sale, in production, or as materials/supplies. The main inventory systems are periodic and perpetual. Periodic systems take a physical count, while perpetual systems continuously update records. Different costing methods - FIFO, LIFO, weighted average - determine cost of goods sold and ending inventory values differently. FIFO assigns earliest costs to cost of goods sold and latest to ending inventory, while LIFO does the opposite. Weighted average uses a blended rate per unit. Journal entries also differ between periodic and perpetual systems.

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    6 views23 pages

    Chapter 8

    Uploaded by

    gdhjygk
    This document discusses inventory accounting methods. It defines inventories as assets held for sale, in production, or as materials/supplies. The main inventory systems are periodic and perpetual. Periodic systems take a physical count, while perpetual systems continuously update records. Different costing methods - FIFO, LIFO, weighted average - determine cost of goods sold and ending inventory values differently. FIFO assigns earliest costs to cost of goods sold and latest to ending inventory, while LIFO does the opposite. Weighted average uses a blended rate per unit. Journal entries also differ between periodic and perpetual systems.

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    © All Rights Reserved
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    of 23

    ACCOUNTIN

    G FOR
    INVENTORIE
    PREPARED BY ; DR UVATHI MARIAPPAN
    INVENTORIES ARE
    ASSETS
    • Held for sale in the ordinary
    course of business
    • In the process of production
    • in the form of materials or
    supplies

    DEFINITION OF
    INVENTORIES
    TYPES OF
    INVENTORIES
    INVENTORY SYSTEM
    Physical Inventory taKen for two reasons
    PERPETUAL SYSTEM
    • CHECK ACCURACY OF INVENTORY
    RECORDS
    2. DETERMINE THE AMOUNT OF
    INVENTORY LOST
    (WASTED RAW MATERIALS, SHOPLIFTING,
    OR EMPLOYEE THEFT)
    DIFFERENT JOURNAL ENTRIES
    BERTWEEN PERIODIC AND PERPETUAL
    SYSYTEM
    DIFFERENT JOURNAL ENTRIES
    BERTWEEN PERIODIC AND PERPETUAL
    SYSYTEM
    DIFFERENT JOURNAL ENTRIES BERTWEEN
    PERIODIC AND PERPETUAL SYSYTEM
    INVENTORY COSTING
    METHOD
    PERIODIC
    1. CALCULATE ENDING INVEN
    SYSTEM
    ENDING INVENTORY UNITS = BEGINNING INVENTORY UNITS +
    PURCHASE UNITS –SOLD UNITS

    1.ENDING INVENTORY UNITS


    = BEGINNING INVENTORY +
    PURCHASES – SALES
    = 1000 + (800+900) -
    (900+600+400+200)
    = 1000+1700-2100
    = 600 UNITS
    2. CALCULATE ENDING
    ENDING INVENTORY COSTS
    INVENTORY COSTS: = ENDING INVENTORY UNITS X
    COST (BASED ON METHOD USED) FIFO
    2. ENDING INVENTORY
    COSTS = 600 UNITS X
    14.00

    OR
    = RM8,400

    LIFO
    2.ENDING INVENTORY
    ENDING INVENTORY COSTS = 600 UNITS
    UNITS= 600 UNITS X10.00
    3.COGS = BEGINNING INVENTORY + PURCHASES
    – ENDING INVENTORY

    LIFO
    FIFO
    = (1000X10.00) + [(800X12.00) = (1000X10.00) + [(800X12.00)
    +(900X14.00)]-RM8,400 +(900X14.00)]-RM6,000
    = RM10,000+(9,600+12,600)- = RM10,000+(9,600+12,600)-
    RM8,400 RM6,000
    = RM10,000+RM22,200- RM8,400 = RM10,000+RM22,200- RM6,000
    4.GROSS PROFIT =
    SALES - COGS

    FIFO LIFO= [(900X17.00) +(600X18.00)


    +(400X17.50) +(200X19.00)] –
    = [(900X17.00) +(600X18.00) +(400X17.50)
    RM26,200
    +(200X19.00)] – RM23,800 = (15300+10800+7000+3800)-
    =(15300+10800+7000+3800)-RM23,800 RM26,200
    =RM36,900-RM23,800 =RM36,900- RM26,200
    =RM13,100 =RM10,700
    WEIGHTED
    1. ENDING INVENTORY UNITS =
    AVERAGE METHOD BEGINNING INVENTORY +
    PURCHASES – SALES
    = 1000 + (800+900) -(900+600+400+200)
    = 1000+1700-2100
    = 600 UNITS

    CALCULATE COGAFS PER UNIT:


    BEGINNING INVENTORY 1000
    UNITS X RM10.00 = 10,000
    PURCHASES 800
    UNITS X RM12.00 = 9,600
    PURCHASES 900
    WEIGHTED
    AVERAGE METHOD 2. ENDING INVENTORY = 600
    X RM11.93
    = RM7,158
    3.COGS = COGAFS– ENDING
    INVENTORY
    = (RM10,000+RM22,200)-
    RM7,158
    4.GROSS PROFIT = SALES - COGS
    = RM25,042
    = [(900X17.00) +(600X18.00) +(400X17.50) +(200X19.00)] –
    RM25,042
    = (15300+10800+7000+3800)- RM25,042
    =RM36,900- RM25,042
    PERPETUAL
    INVENTORY
    FIRST-IN, SYSTEM:
    FIRST-OUT METHOD (FIFO):
    • SALES (COGS) - EARLIER INVENTORY
    • ENDING INVENTORY - THE LATEST COST OF INVENTORY
    LEFT.

    LAST-IN, FIRST-OUT METHOD (LIFO):


    • SALES (COGS) - LATEST INVENTORY
    • ENDING INVENTORY - THE EARLIER COST OF INVENTORY
    LEFT.
    FIRST IN FIRST OUT
    (FIFO) METHOD
    LAST IN FIRST OUT
    (LIFO) METHOD
    MOVING AVERAGE
    METHOD

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