ACC 250 Lecture Notes - Lecture 2: Current Asset, Income Statement

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emeraldleopard234

10 Jun 2018

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Physical Inventory

When the periodic inventory system is used, it is necessary at statement time to take a

physical inventory. A physical inventory is a procedure by which the unsold goods of a

merchandising business are counted and valued. This ending inventory figure is significant in

three respects:

1. It is an important current asset on the balance sheet

2. It is needed to calculate the cost of goods sold figure for the income statement

3. It will be used as the beginning inventory figure for the next accounting period

Merchandise Inventory on the Balance Sheet

A merchandising business buys goods to sell to its customers. Therefore, it keeps a stock of

goods on hand. This inventory of goods usually has a large dollar value and must be included

as an asset on the balance sheet. Merchandise inventory is listed as a current asset because

it will normally be sold and converted into cash within one year. It is listed at its cost price,

and not its selling price, in accordance with the cost principle.

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Document Summary

When the periodic inventory system is used, it is necessary at statement time to take a physical inventory. A physical inventory is a procedure by which the unsold goods of a merchandising business are counted and valued. A merchandising business buys goods to sell to its customers. Therefore, it keeps a stock of goods on hand. This inventory of goods usually has a large dollar value and must be included as an asset on the balance sheet. Merchandise inventory is listed as a current asset because it will normally be sold and converted into cash within one year.

Related Questions

ABC uses a periodic inventory system, and the ending inventory for each year is determined by taking a complete physical inventory at year-end. A physical count was taken on December 31, 2014, and the inventory on-hand at that time totaled $75,000, which reflects historical cost. Record the 2014 Cost of Goods Sold and the 12/31/14 Inventory adjustment. Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level. A review of inventory data further indicated that the current retail sales value of the ending inventory is $110,000 and estimated costs of completion and shipping is 15% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting for adjustments of inventory to market value.

How would I format this journel entry?

cerisejellyfish113

Altira Corporation uses a periodic inventory system. Thefollowing information related to its merchandise inventory duringthe month of August 2018 is available:


Aug.1	Inventory on handâ2,000 units;cost $6.10 each.
8	Purchased 10,000 units for $5.50each.
14	Sold 8,000 units for $12.00each.
18	Purchased 6,000 units for $5.00each.
25	Sold 7,000 units for $11.00each.
31	Inventory on handâ3,000 units

Determine the inventory balance Altira would report in itsAugust 31, 2018, balance sheet and the cost of goods sold it wouldreport in its August 2018 income statement using each of thefollowing cost flow methods.

FIFO

LIFO

Average Cost

Determine the inventory balance Altira would report in itsAugust 31, 2018, balance sheet and the cost of goods sold it wouldreport in its August 2018 income statement using the FIFO method.(Round "Cost per Unit" to 2 decimal places.)

FIFO	Cost of Goods Available for Sale			Cost of Goods Sold - Periodic FIFO			Ending Inventory - Periodic FIFO
FIFO	# of units	Cost per unit	Cost of Goods Available for Sale	# of units sold	Cost perunit	Cost of Goods Sold	# of units in ending inventory	Cost per unit	Ending Inventory
BeginningInventory	2,000	$6.10	$12,200	2,000	$6.10	$12,200		$6.10	$0
Purchases:
August 8	10,000	$5.50	55,000	10,000	$5.50	55,000		$5.50	0
August 18	6,000	$5.00	30,000	3,000	$5.00	15,000		$5.00
Total	18,000		$97,200	15,000		$82,200	0		$0

Determine the inventory balance Altira would report in itsAugust 31, 2018, balance sheet and the cost of goods sold it wouldreport in its August 2018 income statement using LIFO method.(Round "Cost per Unit" to 2 decimal places.)

LIFO	Cost of Goods Available for Sale			Cost of Goods Sold - Periodic LIFO			Ending Inventory - Periodic LIFO
LIFO	# ofunits	Cost perunit	Cost ofGoods Available for Sale	# of unitssold	Cost perunit	Cost ofGoods Sold	# of unitsin ending inventory	Cost perunit	EndingInventory
Beginning Inventory	2,000	$6.10	$12,200		$6.10	$0		$6.10
Purchases:
August 8					$0.00			$0.00
August 18					$0.00			$0.00	0
Total	2,000		$12,200	0		$0	0		$0

Determine the inventory balance Altira would report in itsAugust 31, 2018, balance sheet and the cost of goods sold it wouldreport in its August 2018 income statement using Average costmethod. (Round "Average Cost per Unit" to 2 decimal places.)

AverageCost	Cost ofGoods Available for Sale			Cost ofGoods Sold - Average Cost			EndingInventory - Average Cost
AverageCost	# of units	Unit Cost	Cost of Goods Available for Sale	# of units sold	Average Cost per Unit	Cost of Goods Sold	# of units in ending inventory	Average Cost per unit	Ending Inventory
Beginning Inventory
Purchases:
August 8
August 18
Total	0		$0			$0			$0

peachcod466

Record the 2014 Cost of Goods Sold and the 12/31/14 Inventory adjustment.

Additionally, ABC adheres to GAAP by recording ending inventory at the lower of cost and net realizable value at a total inventory level. A review of inventory data further indicated that the current retail sales value of the ending inventory is $110,000 and estimated costs of completion and shipping is 15% of retail. Be sure to make an additional adjustment, if necessary, to properly value ending inventory using the Loss and Allowance methodology. For Income Statement presentation purposes, be sure to use the Loss Method for accounting for adjustments of inventory to market value.â

Please Help! Iâm not sure about the Loss method for accounting for adjustments of inventory to market value.

I have the following:

BOOK VALUE (HISTORICAL COST) = 75,000

NRV = MV+ESTIMATED COSTâ

110,000 + 15% of 110,000 = NRV 93,500

There is no adjustment required since historical cost is less than NRV.

You can only make allowance for losses not profit. Is that correct or do I need to make an entry for $16,500?

chocolateferret211

ACC 250 Lecture Notes - Lecture 2: Current Asset, Income Statement

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