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Inventory

The document outlines the nature and types of inventories, including merchandise, finished goods, and raw materials, as well as their associated costs such as purchase and conversion costs. It also discusses inventory accounting systems, differentiating between periodic and perpetual systems, and details various inventory-related transactions and their accounting treatments. Additionally, it covers the implications of goods in transit, consigned goods, and conditional sales on inventory accounting.

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solomarkjerome26
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3 views9 pages

Inventory

The document outlines the nature and types of inventories, including merchandise, finished goods, and raw materials, as well as their associated costs such as purchase and conversion costs. It also discusses inventory accounting systems, differentiating between periodic and perpetual systems, and details various inventory-related transactions and their accounting treatments. Additionally, it covers the implications of goods in transit, consigned goods, and conditional sales on inventory accounting.

Uploaded by

solomarkjerome26
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 1

INVENTORIES

Nature of Inventories

1. Held for Sale


2. Process of Production in Sales or Service
3. Form of Materials or Supplied
a. Consumed in (2)

Type of Inventories

1. Merchandise Inventory
a. Goods Purchased or Held for reSale
2. Finished Goods Inventory
a. For Sale Products
3. Work in Process Inventory
4. Materials Inventory and Factory Supplies Inventory
a. Waiting to be Used

Type of Business

1. Manufacturing
a. Finished Goods
i. Awaiting Sale
ii. Same Cost as Process Inventory
b. Goods in Process
i. Raw Materials
ii. Labor
iii. Manufacturing Overhead (Indirect) Cost
1. Partially Completed
c. Raw Materials
i. Tangible Goods
ii. To be used in Production Process
2. Merchandising
a. Merchandise Inventory

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COST OF INVENTORIES

1. Cost of Purchase
2. Cost of Conversion
3. Other Cost need to Bring Inventories
a. To Present Location and Condition

Cost of Purchase

1. Purchase Price
2. Import Duties and Other Taxes and Transport
3. Other Cost Attributed to
a. Finished Goods
b. Materials
c. Services
4. Deduction to Purchase
a. Trade Discount
b. Rebates
c. Other Similar Items

Cost of Conversion

1. Cost DIRECTLY Related to Units of Production


a. Direct Labor
b. Acquisition of Fixed and Variable Production Overhead
i. Fixed Production Overheads
1. Indirect Cost
2. Constant Regardless of VOLUME of Production
a. Depreciation and Maintenance of Factory
i. Equipment and Buildings
3. Cost of factory Management and Administration
ii. Variable Production Overheads
1. Indirect Cost
2. Directly with Volume of Production
a. Indirect Materials
b. Indirect Labor

Cost of Agricultural Produce Harvest from Biological Assets

 Initial Measurement
a. FV – Estimated Cost to Sell on Harvest

Other Costs – Recognized as Expense

1. Abnormal Amounts of Waste


2. Storage Cost
a. Unless Directly in Production Process
3. Administrative Overheads
a. Indirectly
4. Selling Cost
5. Labor Cost to Sales and General Administrative Personnel
6. Profit Margins or Non-Attributable Overheads
a. Price charge by Service Providers
7. Financing Element under DEFFERED Payment Arrangement
a. Borrowing Cost – Finance Cost
i. Inventory Acquisition
ii. Include in Inventory Costs
1. Discrete Project
2. Substantial Period to Complete
a. More Than 1 Year
3. Intention to Complete

Trade And Cash Discount

Gross Price Method Net Price Method Allowance Method


Acquisition Gross Amount Price of Goods, net of Purchase, Net Price
Cash Discount A/P, Gross Price

Purchase Discount Payment Within When Not taken


Discount Period
Discount Not Taken - Purchase Discount Lost Purchase Discount Loss
or
Interest Expense Finance Cost
Account

Finance Cost

Allowance Method

1. Correct Inventory Cost


2. NOT Added to Cost of Inventory

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ITEMS INCLUDED IN INVENTORY

1. Economic Control rather Than Physical Possession


a. Consistent with Legal Ownership
2. Goods Recorded when Received
a. Except when FS is Prepared
i. Goods in Transit
ii. Goods with Buyback Arrangement
iii. Goods Under Product Financing Arrangement

Goods in Transit

1. FOB Shipping Point


a. Includes as Inventory
b. Pay for Freight Cost
2. FOB Destination
a. NOT Transferred Until Delivered in Buyer’s Destination

International Business

1. Other Term for Goods in Transit


a. Free Alongside (FAS)
i. Risk of Loss from Seller to Buyer
1. At Port
b. Cost, Insurance and Freight (CIF)
i. Delivery by Sea to Port of Destination
ii. Seller provides document for buyer
c. Ex-ship
i. Transfer of Ownership
1. Unloaded to Shipping Vessel

Consigned Goods

1. Sale without transfer of ownership


2. Consignor
a. Company Delivering the Goods
b. Agent
c. NOT reported to its FS
d. Includes Goods OUT on Consignment
3. Consignee
a. Company Received the Goods
b. Included in Inventory
i. At Cost + handling and Shipping Cost
c. Excludes Good HELD on Consignment
4. If Sold
a. Consignee gets Commission
b. Remits the NET Amount of Consignor
5. NOT Sold
a. Return to Consignor

Segregated Goods

1. According to Customer Specification


2. Considered Sold When Completed
a. Even in Possession of Seller
b. Excluded from Seller’s Inventory
c. Considered as Revenue
3. Unsold
a. Goods that are Customarily Manufactured, even Physically Segregated

Conditional Sale and Installment Sales

1. Substance Title passed to Buyer


2. Recorded as Sale or Regular Sale
3. Recorded as Sold when Delivered
4. Part of Ending Inventory
a. Goods in hand of Salesperson and Agents
b. Goods held by Customer Approval
c. Good Held by Other for Storage Processing or Shipment

Goods Sold with Buyback Agreement

1. Repurchase at Cost of Inventory + Related Holding Costs


2. Financing Agreement NOT Transfer
3. Inventory as Collateral for Loan
4. Customer has NO Control of Asset
5. Accounting Treatment
a. Seller Retains the Inventory
b. Consideration Received
i. Credited to Financial Liability
c. Interest Expense
i. Consideration Received – Repurchase Price

Goods Sold with Refund Offers

1. Accounting Treatment
a. Revenue for the Transferred Products
i. At Transaction Price
b. Refund Liability
c. Asset to be recovered when (B) is settled
d. Transferred goods is Remove from Inventory
i. At a Carrying Amount

Lay Away Plans and Bill and Hold Sales

1. Lay Away Plans


a. Pays a Portion of Selling Price
b. Agrees to Pay in Installment or Pay full amount in later date
c. Holds Merchandise and Deliver Upon Full Payment
2. Bill-and-Hold
a. Bills the Customer
b. Seller Retains Asset Until Transferred to Customer
c. NO need full Payment (e.g. 80% only Paid)
i. Transfer of Ownership
3. Revenue is Recognized, when Buyer has Control Over Product
a. Identified
i. For Customer Specification
b. Ready to Transfer to Customer
c. Seller Has NO Control Over it

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INVENTORY ACCOUNTING SYSTEM

MAKE A TABLE FOR THIS

Add additional table for Journal Entry

Periodic System

1. Physical System
2. No Continuous Record of Physical Quantities
3. Not Accurately Until Ending Inventory
4. Acquisition of Inventory
a. Charge to Purchase
5. Low Values, But Numerous Items
6. Net of Cost Purchase
a. Operating Expense in Income Statement (Nature)
b. NO Cost of Sale or Gross Profit
c. Beg – End Inventory
7. Closing Entry
a. Zero balance for Inv
Perpetual System

1. Continuous Record
2. Effective Planning and Control
3. High Values, Low Quantity
4. Timely Basis in Inventory Record
5. Internal Control Purpose
a. Year-end
6. Difference in Physical Count and Ledger Balance = Error in Recording
7. Inventory Control Account – Physical Count
a. Normal Cause
i. Shrinkage and Breakage
ii. Debit to Inventory Shortage (Nature or Function of Expense Method)
1. Balance is Presented as Other Operating Expense
b. Due to Theft
i. Separate Loss Account

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