...Under the periodic inventory system, the opening stock is accounted as an asset and purchases are accounted as expense. The closing stock is accounted as an asset and is determined based on physical count. Basically, the periodic inventory system is designed to maintain updated figures in both the inventory and cost of goods sold accounts. Separate subsidiary ledger accounts show the balance for each type of inventory so that the company can manage the size and types of merchandise (Littlehale, 2010). Under the perpetual inventory system, however, stocks are accounted as assets and any additional transactions are added or reduced from the asset account. This system is cheaper because no attempt is made to monitor inventory balances until financial statements are to be prepared. Berwick Traders Ltd might consider changing from a periodic inventory system to a perpetual system because the perpetual inventory system establishes better control over inventory. Under the perpetual inventory system, inventory account is dynamic as it updates as soon as receipts and payments are made. Frequent updates will enable Berwick Traders Ltd to determine how much inventory they have on hand at any given moment, thereby making it easier to know when to order more. Furthermore, it reduces manual effort of using physical count to maintain updated balances. Though perpetual inventory system is slightly costly than the periodic inventory system, it will improve the accuracy of Berwick Traders Ltd’s...
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...value of the goods in inventory. By reporting and analyzing such information, a company can help to predict financial performance and the best plan to achieve results. Such inventory valuation methods include: Average Cost Method; FIFO; and LIFO. The inventory valuation methods use two different inventory systems – perpetual and periodic. The perpetual inventory system is used when a company reports the cost of goods sold as those goods are sold throughout the accounting period. The periodic inventory system is used when a company reports the cost of goods sold as a residual at the end of the accounting period. Average Cost Average Cost method is defined as “an inventory plan that prices items in the inventory on the basis of the average cost of all similar goods available during the accounting period.” The benefits of Average Cost include: · Simple to calculate and analyze results · Not subject to income manipulation · Useful when dealing with similar inventory items Average Cost method will result in the gross profit and net income in the middle of the FIFO method and LIFO method results. In cases where the Average Cost method is used, the inventory valuation and cost of goods sold will be have different results if the perpetual or periodic inventory system is used. The “Inventory Template” computed the value of the Periodic Average Cost. The value of the inventory using the Periodic Average Cost method is $48,645.29. The Ending Inventory Purchases Cost Total...
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...cost of goods sold? How does beginning and ending inventory affect cost of goods sold? What are the journal entries a merchandising organization would use to record the purchase and subsequent sale of merchandise? How would these transactions differ with a periodic versus a perpetual inventory system? Why are perpetual inventory systems so much more popular today than back in the early 1960s and earlier? Why would a company employing a perpetual inventory system still take a physical inventory periodically? Home Work Hour aims to provide quality study notes and tutorials to the students of ACC 290 Week 4 Discussion Question 1 in order to ace their studies. ACC 290 WEEK 4 DISCUSSION QUESTION 1 To purchase this visit here: http://www.nerdypupil.com/product/acc-290-week-4-discussion-question-1/ Contact us at: nerdypupil@gmail.com ACC 290 WEEK 4 DISCUSSION QUESTION 1 How would you calculate cost of goods sold? What items make up cost of goods sold? How does beginning and ending inventory affect cost of goods sold? What are the journal entries a merchandising organization would use to record the purchase and subsequent sale of merchandise? How would these transactions differ with a periodic versus a perpetual inventory system? Why are perpetual inventory systems so much more popular today than back in the early 1960s and earlier? Why would a company employing a perpetual inventory system still take a physical inventory periodically? Home Work Hour aims to provide quality...
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...nutrition and promoting heaLth and wellness is a core value, emphasizing responsibility and sustainability. Nestlé products are sold in almost every country in the world. MISSION STATEMENT Nestlé is dedicated to providing the best foods to people throughout their day. Throughout their lives, throughout the world. With our unique experience of anticipating consumers’ needs and creating solutions. Nestle contributes to your well-being and enhances your quality of life.” COST ACCOUBTING INFORMATION SYSTEM OF NESTLE INPUT MEASUREMENT BASIS STANDARD COSTING Nestle is using STANDARD COSTING as a base for input measurement Standard costs are usually associated with a company’s costs of direct material, direct labor, and manufacturing overhead. Rather than assigning the actual costs of direct material, direct labor, and manufacturing overhead to a product, nestle’ like many manufacturers assigns the expected or standard cost. This means that its inventories and cost of goods sold will began with amounts reflecting the standard costs, nor the actual costs, of a product Nestle’, of course still has to pay the actual costs. As a result there almost always differences between the actual costs and the standard costs, and those differences are known as variances, REASON FOR USING STANDARD COSTING Nestle is currently using Standard costing method because the related variances are valuable management tool. If a variance arises, management becomes aware...
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...Submission Date SUBJECT: Recommended Inventory Valuation Method Introduction I have calculated the ending inventory for Fan Company A using the four following inventory valuation methods: Periodic FIFO (First In, First Out) Periodic Average Cost Perpetual FIFO Perpetual LIFO (Last In , First Out) to determine which inventory method to recommend to the management of the Company. A summary of my calculations follows. Provide an explanation of your calculations for each of the inventory valuation methods. Finally, your recommendation. Fully explain how your inventory valuation method impacts the Company’s net income and why it is better than the other methods. INCOME EFFECT LIFO | WA | FIFO | Sales | 100,000 | 100,000 | 100,000 | CGAS (Beg Inv. + Purchases) | 74,000 | 72,000 | 70,000 | Ending Inventory | (48,000) earlier cost | (50,000) | (52,000) later cost | CGS | 26,000 later cost | 22,000 | 18,000 earlier cost | Income Effect | 74,000 | 78,000 | 82,000 | Under the FIFO method, the first goods purchased are considered to be the first goods used or sold. Ending inventory is thus made up of the latest (most recent) purchases. Because of this, the FIFO method closely approximates the actual physical flow of merchandise and the cost allocated to ending inventory approximates current cost. Whenever the FIFO method is used, the ending inventory is the same whether a perpetual or periodic system is used. This is true even during...
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...Inventory Systems and Calculating Revenues, Expenses, and Income Inventory Systems and Calculating Revenues, Expenses, and Income QS 5-8A Contrasting periodic and perpetual systems Identify whether each description best applies to a periodic or a perpetual inventory system. a. Provides more timely information to managers. - Perpetual b. Requires an adjusting entry to record inventory shrinkage – Perpetual c. Markedly increased in frequency and popularity in business within the past decade. - Perpetual d. Records cost of goods sold each time a sales transaction occurs. - Perpetual Cost of goods sold = (Purchases + Beginning inventory – ending inventory) Gross Profit = (Net Sales – COGS) Net Income (Gross Profit – Expenses) a.36000 + 6000 - x = 3405042000 - x = 34050-x = -7950x = 7950 | b.x + 17050 - 2700 = 15900x + 14350 = 15950x = 1600 | c.36000 - x = 3750-x = 3750 - 36000-x = -32250x = 32250 | d.32000 + 7000 - 6600 = x32400 = x | e.5600 + 2560 - x = 56008160 - x = 5600-x = -2560x = 2560 | | | x + 7500 - 9000 = 32250x - 1500 = 32250x = 33750 | x - 32400 = 45600x = 78000 | | Journalize the following merchandising transactions for CSI Systems assuming it uses (a) a periodic inventory system and (b) a perpetual inventory system. 1. On November 1, CSI Systems purchases merchandise for $1,400 on credit with terms of 2_5, n_30, FOB shipping point; invoice dated November 1. n_30, FOB shipping point; invoice dated November 1. 2. On...
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...CHAPTER 6 Inventory Costing ASSIGNMENT CLASSIFICATION TABLE | | |Brief | |Problems |Problems | |Study Objectives |Questions |Exercises |Exercises |Set A |Set B | |1. Describe the steps in determining inventory|1, 2, 3, 4 |1, 2 | 1 | 1 | 1 | |quantities. | | | | | | |Prepare the entries for purchases and sales of |6, 8 | 3 | 2, 10 |2, 8, *9 |2, 8, *9 | |inventory under a periodic inventory system. | | | | | | |3. Determine the cost of goods sold under a | 5, 7, 8 |4, 5 | 3, 4 | 2 | 2 | |periodic inventory system. | | | | | | |4. Identify the unique features of the income |9 | 5, 6 | 5 | 2, 3 | 2, 3 | |statement for a...
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...exercises Exercise 8-1 Perpetual and periodic inventory systems compared ( LO8-1 Text: E 8-4 The following information is available for the Kleinschmidt Corporation for 2013: Beginning inventory $112,000 Merchandise purchases (on account) 265,000 Freight charges on purchases (on account) 16,000 Merchandise returned to supplier (for credit) 6,000 Ending inventory 123,000 Sales (on account) 350,000 Cost of merchandise sold 264,000 Required: Applying both a perpetual and a periodic inventory system, prepare the journal entries that summarize the transactions that created these balances. Include all end-of-period adjusting entries indicated. [pic] [pic] Exercise 8-2 Goods in transit; consignment ( LO8-2 Text: E 8-7 The December 31, 2013, year-end inventory balance of the Delphi Printing Company is $317,000. You have been asked to review the following transactions to determine if they have been correctly recorded. 1. Materials purchased from a supplier and shipped to Delphi f.o.b. destination on December 28, 2013, were received on January 2, 2014. The invoice cost of $50,000 is not included in the preliminary inventory balance. 2. At year-end, Delphi had $12,000 of merchandise on consignment from the Harvey Company. This merchandise is included in the preliminary inventory balance. 3. On December 29, merchandise costing $17,000 was shipped to a customer f.o.b. shipping point and arrived at the customer’s...
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...Chapter 6 Essay Question In the case of Ron and Lois, they are both department managers with Litwins department store. Lois is the manager of housewares department and Don is the manager of the shoe department. Ron has observed Lois taking inventory from her own department home, apparently without paying for it. He hesitates confronting Lois because he is due to be promoted, and needs Lois' recommendation. He also does not want to notify the company management directly, because he doesn't want an ethics investigation on his record, believing that it will give him a “goody-goody” image. This week, Lois tried on several pairs of expensive running shoes in his department before finding a pair that suited her. She did not, however, buy them. That very pair was missing this morning. Part one In the business world, you will sometimes be called on to weigh the ethics of decisions that can affect not just your own future but possibly the futures of your fellow workers, your company and its customers. It’s not always easy to distinguish between what is right and wrong in many situations. (Boone & Kurtz, 2011) In part one of this paper, I will define ethics and look at how ethics played a role in management as well as provide solutions. In this case Ron has an ethical dilemma, if he says something about what he has observed, Lois may not recommend him for the promotion and if he does not say anything about what he has seen, he may be fired if and when Lois gets caught. Ethics is...
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...Inventory Systems Michael Asibu, Woodrow Lemon, Laura Moll, Jenessa Nagozruk, Brian Norton QRB/501 May 21, 2012 Ohidul Siddiqui Inventory Systems With the increasing demand to cut costs and increase revenues, developing the right inventory systems have become essential to compete in business. According to the Counselors to America’s Small Business, “Control of inventory, which typically represents 45% to 90% of all expenses for business, is needed to ensure that business has the right goods on hand to avoid product shortage and meet the consumer’s needs” (Counselors to America’s Small Business, p. 1). To ensure proper business practice an evaluation of inventory systems is necessary to ensure businesses can be cost-efficient, profitable, and provide for consumers’ needs. Top and Bottom System The top and bottom inventory system seems simple at first glance. “In this system, [the company] puts limits on how high and low [the company] inventory levels can go for each product (Fishbowl, 2012). The company sets two levels for the stock. The first is the level the managers know that they need to order, and the other is the level that the managers need to bring the stock back to. So if the top level was 15 and the bottom level was five the managers would order 10 more when the company hit five products left. This works to an extent but if the products were snow shovels, then keeping 15 on hand yearly would not make sense. The business would be losing valuable storage...
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...firm would normally use an inventory account titled finished goods inventory goods in process inventory raw materials inventory merchandise inventory 2. MC.07-18 A manufacturing company typically has how many inventory accounts? 1 3 2 4 3. MC.07-19 A manufacturing firm would not normally have an account titled raw materials inventory finished goods inventory merchandise inventory goods in process inventory 4. MC.07-20 Which of the following is included in the work in process account? cost of raw materials used in production manufacturing overhead direct labor cost All of these answer choices are included in the work in process account. 5. MC.07-22 A perpetual inventory system keeps a continuous record of the physical quantities of inventory on hand does not maintain a continuous record of the cost of inventory on hand does not maintain a continuous record of the physical quantities of inventory on hand only records the inventory on hand at the end of the year physical count 6. MC.07-23 Which of the following are characteristics of a perpetual inventory system? Management knows how much inventory is on hand at all times. The computer tracks inventory upon a sale and the cost of goods and inventory are immediately updated. Purchases of inventory are recorded to the inventory account. All of these answer choices are characteristics of a perpetual inventory system. 7. MC.07-25 Which of...
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...EXERCISE 8-5: (a) Inventory December 31, 2014 (unadjusted) $234,890 Transaction 2 13,420 Transaction 3 12,800 Transaction 4 15,630 Transaction 5 8,540 Transaction 6 (10,438) Transaction 7 (10,520) Transaction 8 1,500 Inventory December 31, 2014 (adjusted) $171,872 (b) Transaction 3 Sales Revenue............................................... 12,800 Sale on Account........................................................................ 7,350 (To reverse sale...
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...merchandise purchases and sales transactions and explain the adjustments and closing process for merchandisers. A Look Ahead Chapter 6 extends our analysis of merchandising activities and focuses on the valuation of inventory. Topics include the items in inventory, costs assigned, costing methods used, and inventory estimation techniques. Chapter 4 focused on the final steps of the accounting process. We explained the importance of proper revenue and expense recognition and described the closing process. We also showed how to prepare financial statements from a work sheet. Larson−Wild−Chiappetta: Fundamental Accounting Principles, Seventeenth Edition 5. Accounting for Merchandising Operations Text © The McGraw−Hill Companies, 2004 Learning Objectives CAP Conceptual Analytical Procedural merchandising activities C1 Describeincome components for aand A1 Compute the acid-test ratio and explain its use to assess liquidity. identify merchandising company. (p. 178) (p. 193) P1 Analyze and record transactions a for merchandise purchases using perpetual system. (p. 180) perpetual system. (p. 185) C2 Identify and explain the inventory asset of a merchandising company. ( p. 179) both perpetual and C3 Describeinventory systems. ( p. 179) periodic C4 Analyze and interpret costaflows and operating activities of...
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...Acct 3511 Chapter 8 Concepts – Inventory & Cost of Goods Sold Professor Marco J. Malandra, CPA 1. State 4 characteristics of Inventory & Cost of Goods Sold (CGS)? Is Inventory initially capitalized or expensed? What concept determines when it’s expensed? Inventory: 1) Asset (current) 2) Balance Sheet 3) real 4) debit NAB CGS: 1) Expense 2) Income Statement 3) nominal 4) debit NAB Matching: Any expenses associated with revenue are recorded in the same period as the revenue. Inventory is not expensed until period sold, when Sales revenue is also recorded. 2. What is a Merchandiser and how do their FS’s differ from a Manufacturer or a Service Co? Retail & Wholesale: Buy Inventory or Merchandise, appears on BS until sold, then IS CGS. Manufacturer: Makes inventory appearing on BS or Notes in 3 stages, until sold, then IS CGS. 1) Raw Materials: Major resources to be used in manufacturing products. 2) Work-in-Process: Costs of materials, labor & overhead needed to make products. 3) Finished Goods: Completed WIP costs, ready to be sold. Service Co: No Inventory or CGS accounts (of course, many companies are hybrids, > 1 type). 3. Know the CGS Formula used to determine CGS on the IS: + Beginning Inventory (BI: Costs of inventory not sold from last period’s BS) + Purchases (All costs to buy including Transportation-in, less any Purchase Discount...
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...INVENTORIES QUESTIONS: 1. Write down the definition of ‘Inventory’ under IAS-2. What physical materials does ‘Inventory’ include? 2. According to IAS-2, what are the components of non-components of Inventory Cost? 3. Distinguish between ‘Perpetual’ and ‘Periodic’ system for recording Inventory? Show proper examples. 4. What are the Cost Flow Formulas/Assumptions allowed in IAS-2 for maintaining Inventory? Show examples. Which one should be used in what situation? 5. Explain LIFO? Why LIFO is not permitted in IAS-2. Do you think repealing LIFO was wise decision of IASB? Discuss with its advantages & disadvantages. 6. What is NRV of an asset? When should company write down its inventories to NRV? Explain write-down processes with illustrations. * Write down the definition of ‘Inventory’ under IAS-2. What physical materials does ‘Inventory’ include? * Paragraph-6 of IAS-2 defines inventories as following- 1. Held for sale in ordinary course of business 2. In the process of production for such sale 3. in the form of materials or supplies to be consumed in the production process or in the rendering of services. This definition implies that 3 types of physical materials are to be included in ‘Inventories’- a) Raw Materials b) Work in process c) Finished Goods * According to IAS-2, what are the components of non-components of Inventory Cost? * Components of Inventory Cost: 1) Cost of Purchase Includes-...
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