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Inventories: Classes of Inventories Consignment

CIF means Cost, Insurance, and Freight. Under CIF terms, the seller is responsible for costs and risk until goods are delivered to the carrier. The buyer agrees to pay a lump sum that covers the cost of goods, insurance costs, and freight charges. Ex-ship terms mean the seller is responsible for expenses and risk until goods are unloaded. Inventories include goods owned and on hand, goods in transit that have been sold FOB destination or purchased FOB shipping point, and goods held on consignment. The periodic and perpetual inventory systems are two common approaches to accounting for inventories.

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51 views

Inventories: Classes of Inventories Consignment

CIF means Cost, Insurance, and Freight. Under CIF terms, the seller is responsible for costs and risk until goods are delivered to the carrier. The buyer agrees to pay a lump sum that covers the cost of goods, insurance costs, and freight charges. Ex-ship terms mean the seller is responsible for expenses and risk until goods are unloaded. Inventories include goods owned and on hand, goods in transit that have been sold FOB destination or purchased FOB shipping point, and goods held on consignment. The periodic and perpetual inventory systems are two common approaches to accounting for inventories.

Uploaded by

Jonathan Navallo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Cost, Insurance, and Freight (CIF)

CHAPTER 15:
INVENTORIES Seller: pays for the cost of loading; title/risk
passes to buyer upon delivery of goods to
Assets held for sale in the ordinary course of carrier
business; all goods to which the entity has title;
current assets Buyer: buyer agrees to pay lump sum the cost
of goods + insurance cost + freight charge
Cost of service – included in case of service
provider; labor and other cost directly engaged Ex-ship
in providing service
Seller: bears all expenses and risk until goods
are unloaded

CLASSES OF INVENTORIES
1. TRADING CONCERN – buys & sells goods CONSIGNMENT – method of marketing
in same form goods

2. MANUFACTURING CONCERN – buys Consignor – owner; transfers physical


goods & alters possession
o Finished goods – completed products Consignee – sells goods on owner’s behalf
ready for sale
 Include in consignor’s inventory; exclude
o Goods in process – partially completed
from consignee’s
o Raw materials – no work has been done
yet  Freight & other handling charges out on
o Factory/Manufacturing Supplies – similar consignment are part of cost of goods
to raw materials but with indirect consigned
relationship to end product  Consigned goods recorded by consignor by
memo entry

LEGAL TEST
Goods are included in the inventory if… ACCOUNTING FOR INVENTORIES
 Owned and on hand 1. PERIODIC SYSTEM – physical count at
 In transit, sold FOB destination end of accounting period; actual/physical
 In transit, purchased FOB shipping point inventories; small peso investment
 Out on consignment
 In the hands of salesmen/agents Example: groceries, hardware, auto parts
 Held by customers on approval/trial 2. PERPETUAL SYSTEM – maintenance of
*accountant normally records purchases when records called stock cads; book/perpetual
received, sales when shipped REGARDLESS of inventories; large peso investment
when title is passed Example: jewelry, cars

MARITIME SHIPPING TERMS TRADE CASH


Free Alongside (FAS) DISCOUNTS DISCOUNTS
o Deductions from o Deductions from
Seller: bears all expenses/risk in delivering list/catalog price to invoice price when
goods to the dock arrive at invoice payment is within
price discount period
Buyer: bears cost of loading and shipment; o NOT recorded o Recorded
title passes when carrier takes possession of
goods
GROSS METHOD NET METHOD
o Violates matching o Theoretically
principle correct historical
cost
o Does not allocate COST OF INVENTORIES OF A SERVICE
discounts taken b/w PROVIDER
goods sold and on
hand Consists of labor and other costs of personnel,
o More convenient directly engaged in providing service;
Inventories = work in progress
COST OF INVENTORIES × Costs relating to sales and general
administrative personnel, but are
1. COST OF PURCHASE – directly recognized as expenses
attributable to acquisition of finished goods,
materials, services LESS trade discounts,
rebates, etc.

2. COST OF CONVERSION – directly


attributable to units of production such as
direct labor
Fixed production overhead
o Remains constant regardless of volume
of prod.
o Allocation based on normal capacity
(production expected to be achieved on
average over a no. of periods, with the
loss capacity)
Example: depreciation of building and
equipment

Variable production overhead


o indirect; varies directly with volume of
production
o allocation based on actual use
o By products – measured at net realizable
value then deducted from cost of main
product
Example: indirect labor and materials

3. OTHER COST – recognized only to the


extent incurred

× Abnormal amounts of wasted production


costs
× Storage costs, unless necessary to a
further prod. Stage
On goods in process – capitalized
On finished goods – expensed
× Administrative overheads that do not
contribute
× Distribution/selling costs

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