Manual Project Ch 6

Card Set Information

Manual Project Ch 6
2014-10-26 14:40:16
Accounting 406

Inventory Cycle
Show Answers:

  1. Periodic Inventory Method
    Cost of Goods Sold calculation
    • Beginning inventory  +
    • Net Purchases(include freight-in)  -
    • Ending Inventory   =
    • Cost of goods sold
  2. Periodic Inventory Method
    Steps in Determining Inventory
    • 1. Count inventory
    • 2. Summarize Inventory
    • 3. Determine correct unit cost of inventory
    • 4. Extend price times quantity and add totals
    • 5. Record in journal and post to ledger
  3. Count inventory
    Tags or count sheets can be used. One person verifies a count then a second person verifies a count. If the two counts match its good, if not then a recount.
  4. Summarize inventory
    Same type of inventory  in more than one place is combined.  So the company needs to count and organize in a way to fit their reporting needs.
  5. Determine correct unit cost of inventory 4
    • 1 costing method and type of inventory.
    • 2.LIFO, FIFO, or weighted average.
    • 3.Freight, handling, labor and overhead cost.
    • 4.Lower of cost or market
  6. Extend price times quantity and add totals
    • process is mechanical
    • raw material, work-in-process, finished goods totaled seperatly
  7. Record in general journal and post to general ledger
    Adjusting entries are made depending on the recording process of inventory
  8. Perpetual Inventory Method
    Ending Inventory calculation
    • Beginning Inventory  +
    • Purchases   -
    • Cost of goods sold   =
    • Ending Inventory
  9. Perpetual Inventory Method
    Cost of goods sold calculation
    calculated at each sale based on the inventory costing method
  10. Accounting entries for each sale transaction 2
    • Record the sale-selling price
    • Record the cost of goods sold- at cost
  11. Cons of perpetual inventory method
    Higher cost to maintain record keeping
  12. Benefits of perpetual method 2
    • 1. quantity and dollar value on hand at any time for any item can be determined
    • 2. provides check on accuracy of cost of good sold and  measure of losses by theft or spoilage
  13. Physical count when there are perpetual records
    used to compare to perpetual record. Can reveal errors and theft. Frequency of count depends on past differences.
  14. Detailed perpetual inventory records
    Record of unit and unit cost of each type of inventory, without dollar balance. Not the perpetual inventory method because cost of goods sold not calculated.
  15. Internal Controls
    Perpetual records
    helps control inventory stock levels and determine theft
  16. Internal Control
    Safekeeping of inventroy
    Prevents theft or misuse.
  17. Internal Controls
    Independent checks on performance
    • 1. Second count by independent team 
    • 2. Recalculation of unit and total costs