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Inventory Management DecisionsPrimary goals of management decisions: |
1. Maintain sufficient quantity to meet customer needs
2. Ensure quality meets customers expectations
3. Minimize costs of getting/carrying inventory Reporting InventoryIncome Statement: once items are sold, you remove cost of goods sold from income statement | Balance Sheet: inventory is set up as an asset when purchased |
Percentage of Credit Sales v Aging of A/R% (income statement method) easier to compute; aging (balance sheet method) is more accurate | income statement method: begin by writing journal entries in problem | balance sheet method: begin by making a chart |
STEPS TO FIFO/LIFO/WEIGHTED AVERAGEFIFO | LIFO | WEIGHTED AVERAGE | STEP 1: begin by doing COGA. STEP 2: when determining COGS, remember to do FIRST-IN-FIRST-OUT | STEP 1: SAME AS FIFO STEP 2. REMEMBER TO DO LAST-IN-FIRST-OUT | STEP 1: SAME AS FIFO AND LIFO STEP 2: DIVIDE COGA BY NUMBER OF UNITS AVAILABLE STEP 3. USE THE NUMBER TO FIND COGS AND COST OF ENDING INVENTORY |
| | Sales TransactionsFOB Shipping Point | FOB Destination |
FOB Shipping: sale recorded when goods leave seller's shipping department
FOB Destination: sale recorded when goods reach destination FORMULASCOGS = COGA - EI | COGA = BI + PURCHASES | GROSS PROFIT = SALES - COGS | INTEREST = PRINCIPAL X INTEREST RATE X TIME | NET RELIZABLE VALUE: A/R TOTAL - ALLOWANCE TOTAL |
| | Types of InventoryMerchandisers | Manufacturers |
Merchandisers: buy + sell finished goods
Manufacturers: buy raw materials + produce and sell finished goods
(raw materials, work in process, and finished goods) Perpetual VS Periodical Inventory SystemsPerpetual: recorded every time item is bought/sold/returned; uses bar codes like Walmart; constantly recording inventory | Periodical: always updated at the end of accounting period; require inventory to be counted at the end of every period |
Financial Statement Effects (rising prices)FIFO: COGS smaller than LIFO, Gross Profit larger than LIFO, Net Income larger than LIFO, Inventory larger than LIFO | LIFO: COGS larger than FIFO, gross profit smaller than FIFO, Net income smaller than FIFO, inventory smaller than FIFO |
JOURNAL ENTRY EXAMPLESBAD DEBT EXPENSE: debit bad debt expense, credit allowance | CASH COLLECTIONS: debit cash, credit A/R | CREDIT SALES: debit A/R and credit | WRITE OFFS: debit allowance, credit A/R |
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