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Group Member HamzaKabishaMehmoonaZareen
Merchandise Inventory
Merchandise inventory is the goods owned by the business organization which are held for sale to the consumers
Goods held for sale to customers
Merchandise Inventory?
Understanding and journalizing transactions using the perpetual and periodic inventory system and explaining the difference between perpetual and periodic inventory systems
Use the gross profit percentage and inventory turnover to evaluate a business
Estimate inventory by the gross profit method
Objectives
Merchandise inventory cash
To record purchased of Goods with cash
Merchandise inventory accounts payable
To record purchased of goods on account
Purchasing TransactionCash Accounts Payable
Accounts Payable cashmerchandise inventory to record purchases return
accounts payable merchandise inventory
to record purchases return
Purchase ReturnCash
It is an term that indicates when the ownership of Merchandise/Goods is transfer from the seller to the buyer.
FOB Shipping Point FOB Destination
FOB(FREE ON BOARD)
Buyer of the Merchandise/ Goods Pays the transportation cost.
The cost is added in merchandise inventory.
Seller of the Merchandise/ Goods pays the transportation cost.
The cost is recorded as a “Delivery Expense/Cost” separately.
Transportation CostFOB
Sipping pointFOB
Destination
InventoryAccounting
Method
PerpetualMethod
Periodic/PhysicalMethod
Method’s
A system that maintain a running record to show the inventory on hand at all time.
Merchandise inventory and cost of merchandise sold accounts are updated on continuous basis.
Inventory counted at least once a year. Used for all types of goods.
Perpetual Inventory System
FIFO(First-In First-Out) Method LIFO(Last-In-First-Out) Method Average Cost Method
Inventory CostingUnder perpetual IS
Using FIFO cost are included in the merchandise sold in the order in which they are incurred.
First-In First-Out Method
60 units Less units sold 40 Ending inventory 20 units
20 units × $18 per unit = $360
First-In First-Out Method
DATE PURCHASE SELLING BALANCE
Unit Price/unit
Total Unit Price/unit
Total Unit Price/unit
Total
January 1st 600 4500 2700000
January 10th 200 4700 940000 600 4500 2700000
200 4700 940000
January 15th 400 4500 1800000 200 4500 900000
200 4700 940000
January 28th 200 4500 900000 - - -
100 4700 940000 100 4700 470000
Using LIFO the cost of units sold is the cost of the most recent purchases.
Last-In First-Out Method
60 units Less units sold 40 Ending inventory 20 units
10 units × 10 =$10010 units × 14 = 140Total $240
Last-In First-Out MethodDATE PURCHASE SELLING BALANCE
Unit Price/unit
Total Unit Price/unit
Total Unit Price/unit
Total
January 1st 600 4500 2700000
January 10th 200 4700 940000 200 4700 940000
600 4500 2700000
January 15th 200 4700 940000 400 4500 180000
200 4500 2700000 100 4500 450000
January 28th 300 4500 1350000 - - -
Average Costper unit =
Cost of Goods Available
Number of units available
Average Costing
Usually falls between FIFO & LIFO amounts
An average unit cost for each type of item is computed each time when a purchase is made
DATE PURCHASE SELLING BALANCE
Unit Price/unit
Total Unit Price/unit
Total Unit Price/unit
Total
January 1st 600 4500 2700000
January 10th 200 4700 940000 800 4550 3640000
January 15th 400 4550 1820000 400 4550 1820000
January 28th 300 4550 1365000 - - -
AVERAGE COST
Other3%
Average20%
LIFO31% FIFO
46%
Use Of The VariousInventory Methods
A system that do not keep a continuous records of inventory on hand all the time.
Merchandise inventory and cost of merchandise sold accounts are usually updated at the end of year.
Inventory counted at least once a year. Used for inexpensive goods.
Periodic Inventory System
DifferencePerpetual
Merchandise Inventory Cash Or A/P Sales Return &
Allowance Sales Discount Cost Of Merchandise
Sold
Periodic Purchases Cash Or A/P Sales Return &
Allowance Sales Discount Cost Of
Merchandise Sold
Purchase of Goods
Return of Purchase
INVENTORY SYSTEM
PerpetualMerchandise inventory Cash or A/P
Cash or A/P Merchandise inventory
PeriodicPurchases Cash or A/P
Cash or A/PPurchase Return
Event
Perpetual Periodic Payment
Of Accounts Payable
Collection Of Accounts Receivable
Payment Of Accounts Payable On Discount
EventAccounts Payable
Cash
CashAccounts Receivable
Accounts PayableCash
Merchandise Inventory
Accounts Payable Cash
Cash A/R
A/PCash
Purchase Discount
Perpetual Periodic Collection
Of Accounts Receivable On Discount
Year End Adjusting Entries
EventCashSales DiscountAccount Receivable
CMSMerchandise Inventory
In Case Of Shrinkage Inventory
CashSales Discount A/R
CMS(B) Merchandise Inventory Purchase(C) Merchandise Inventory CMS
Merchandise Inventory(B)+Purchases-Cost Of Merchandise
Available For Sale-Merchandise Inventory(C)-Cost Of Merchandise Sold
Gross profit method is a way to estimate inventory based on the cost of goods sold model.
Also called gross margin method.
Gross Profit Method
Cost of goods sold:Beginning inventory $1,000+ Purchases 6,000= Goods available 7,000- Cost of goods sold (5,000)= Ending inventory $2,000
Gross Profit Method
Beginning inventory $14,000Purchases 66,000Goods available 80,000Cost of goods sold:
Net sales revenue $100,000Less estimated gross profit 43% (43,000)Estimated cost of goods sold 57,000
Estimated cost of ending inventory $23,000
Gross Profit Method
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