ACC 250 Lecture Notes - Lecture 1: Perpetual Inventory

30 views1 pages

emeraldleopard234

10 Jun 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Merchandise Inventory

Businesses that buy goods for the purpose of selling them at a profit are dealing in

merchandise. The quantity of merchandise on hand is known as merchandise inventory or

stock in trade.

The type of merchandise included in inventory varies from business to business. For

instance, the merchandise inventory of a lumber company consists of various types and

sizes of wood products. The merchandise inventory of a good retailer consists of a variety of

food commodities. The merchandise inventory of an automobile dealer consists of new and

used cars as well as replacement parts.

Periodic Inventory System

Over the years, accounting for inventory has been done most commonly by the periodic

system. It has been the popular choice because it is inexpensive. The periodic inventory

system is one in which the cost of the inventory sold is determined only at the end of each

fiscal period. This usually means once a year. Businesses that use this method do not keep

up to date inventory records nor do they calculate the cost of goods sold between

statement dates.

Another system, the perpetual inventory system, has become more common in recent years

because of the increased use of computers in business.

The Inventory Cycle

Merchandise is generally sold fairly quickly in a successful business. The business has to

renew its stock regularly in order to have sufficient quantities on hand. Merchandise moves

in and out of the business in a regular pattern, as shown in the following steps.

1. There is inventory at the beginning of the accounting period

2. Merchandise is sold and moves out more or less continually during the accounting period.

3. Merchandise is replacing by the purchase of new stock from time to time

4. The inventory at the end of the accounting period s more or less the same as at the

beginning

Merchandise Inventory and the Financial Statements

When the periodic inventory system is used, no effort is made during the fiscal period to

find out either the figure for the cost of the goods sold or the figure for the goods on hand.

This creates a problem at statement time because the statements cannot be prepared

without these two figures.

find more resources at oneclass.com

Unlock document

This preview shows half of the first page of the document.
Unlock all 1 pages and 3 million more documents.

Already have an account? Log in

Document Summary

Businesses that buy goods for the purpose of selling them at a profit are dealing in merchandise. The quantity of merchandise on hand is known as merchandise inventory or stock in trade. The type of merchandise included in inventory varies from business to business. For instance, the merchandise inventory of a lumber company consists of various types and sizes of wood products. The merchandise inventory of a good retailer consists of a variety of food commodities. The merchandise inventory of an automobile dealer consists of new and used cars as well as replacement parts. Over the years, accounting for inventory has been done most commonly by the periodic system. It has been the popular choice because it is inexpensive. The periodic inventory system is one in which the cost of the inventory sold is determined only at the end of each fiscal period.

Related Questions

Which of the following statements is false?

Cash receipts events data are comprised of one or more invoicerecords.

None of these answers are correct

The typical B/AR/CR system assists in preparing internal andexternal reports.

Cash receipts can be accelerated by using some form of EFT.

The two types of adjustments that commonly result from aperiodic review of the aging details of customer account balancesare a recurring entry for estimated bad debts and a bad debtwrite-off.

Which of the following statements is true?

The billing system in which the invoice is prepared after goodshave been shipped and the sales order notification has been matchedto shipping's billing notification is called a post-billingsystem.

The billing system in which the invoice is prepared after goodshave been shipped and the sales order notification has been matchedto shipping's billing notification is called a pre-billingsystem.

The billing system in which the invoice is prepared after goodshave been shipped and the sales order notification has been matchedto shipping's billing notification is called a open-itemsystem.

The billing system in which the invoice is prepared after goodshave been shipped and the sales order notification has been matchedto shipping's billing notification is called a balance-forwardsystem.

None of these answers are correct.

Which of the following is not an operations process goal for theBilling/Accounts Receivable/Cash Receipts process?

Ensure security of resources

Ensure efficient employment of resources

Ensure AR master data update accuracy

None of these answers are correct

Ensure effectiveness of operations

Which of the following statements is false?

Pre-formatted screens in the OE/S process are a control planthat involves the detailed comparison of the individual elementsappearing on two source documents.

An invoice is a business document---either paper or electronictransmission---used to notify the customer of an obligation to paythe seller for merchandise which was ordered and shipped.

Depending on how the OE/S process is designed, the sales ordermaster data may be updated at least twiceÂ¾once when a new salesorder is created and later to reflect the shipment of thatorder.

None of these answers are correct.

Funds on deposit and available for use are known as goodfunds.

Which of the following statement is false?

The AR master file address is a postal address, maintained bythe firm's bank, which is used solely for the purpose of collectingchecks.

None of these answers are correct

The customer master data is a data store that contains dataidentifying the particular characteristics of each customer.

EFT includes wire transfers, credit and debit card processing,as well as payments made via the ACH Network.

A tickler file is one that is reviewed on a current and regularbasis for the purpose of taking action to clear the items from thatfile.

jadeworm65

Ben's Barn is a successful, locally owned, organic farmer.Ben and his wife sell produce at local farmer's markets. The farmis the primary source of income for Ben and his family. Ben hasbeen in business for 10 years, and has developed a reputation forhigh quality produce. Ben's extensive greenhouses allow him to growvarieties not native to the local area, which commanded higherprices in the local markets.

This summer, the weather was perfect and Ben had a bumpercrop. Ben and his wife could not keep up, and made the decision tohire a part-time temporary employee for the firsttime. Ben took great pride in his produce, and made thedecision to send the employee to the farmer's market so that hecould tend to the harvest and provide the care he thought itneeded. Ben and the employee would load the produce inthe company's truck, and take it the farmer's market three (3)times per week. Once set up, Ben would spend some time talking withthe other vendors and regular customers, and then return to thefarm. The employee was responsible for cash sales to the marketcustomers. Some inventory was sold by the item, whileother inventory was sold by weight. They set up a small scale atthe booth each day to weigh produce. A portable cash register wasalso taken to register sales and provide receipts to customers. Theregister kept a duplicate copy of the receipts forreconciliation. The register also featured subtotalingfeatures which would add the sales for the day. At the end of theday, Ben would return to help load the remaining produce and closethe produce stand for the day. He would change out the registertape, but like any good farmer, often left the tapes in a folder inhis truck until he could remember to take them into thehouse/office. At the end of each week, Ben's wife made atrip to the bank to deposit cash receipts and to get the properchange/denominations to start the new week's cash box. Since herhusband was so busy, she wasn't able to catch up with him to getthe register receipts to match to deposits, so she just counted thecash and deposited it.

For his records, Ben recorded every detail of the harvest.He wanted to know how to plan for the next season. He recordedquantities and weights of produce harvested by variety. He trackedthe harvest daily, but never reconciled it to sales at the marketand produce that was returned from the market.

Harvest continued to be exceptionally busy. As a result, Bencould barely keep up with writing his employee a weekly payrollcheck. When the bank statements came at the end of the month, hewas too busy for paperwork and failed to reconcile statements untilthe following month. After all, he and his wife had run thebusiness for 10 years this way, he would catch up on paperwork whenit slowed down.

At the end of the season, Ben finally slowed down enough tocatch up on paperwork. He began to review the bank statements, andnoticed that deposits were less than they had been in prior years,when harvests had not been as good. Ben was certain that he hadsold more inventory. In fact, he knew he had because half-waythrough the season he had added an additional day of sales (a 4thmarket) each week. Ben had helped load the truck at the end of eachday, and only a small amount ever returned to the farm. What couldhave happened? Did the employee have something to do with this?Would Ben ever know how much he lost?

For this exercise, your job is to identify controls and putcontrols in place to prevent the loss of a company's liquid assets:cash & inventory.

IF the losses did occur, identify control mechanisms that couldbe put in place to timely detect the losses. Why do you believethose mechanisms would have been effective?

coppercat654

Numerous frauds in the early 2000s spurred Sarbanes-Oxleylegislation (SOX). SOX changed the way businesses looked at andreported their internal control structure. Internal controls areneeded both to prevent and deter fraud as well as errors.Segregation of duties is the most commonly considered internalcontrol. Ben's Barn is a successful, locally owned, organic farmer.Ben and his wife sell produce at local farmer's markets. The farmis the primary source of income for Ben and his family. Ben hasbeen in business for 10 years, and has developed a reputation forhigh quality produce. Ben's extensive greenhouses allow him to growvarieties not native to the local area, which commanded higherprices in the local markets. This summer, the weather was perfectand Ben had a bumper crop. Ben and his wife could not keep up, andmade the decision to hire a part-time temporary employee for thefirst time. Ben took great pride in his produce, and made thedecision to send the employee to the farmer's market so that hecould tend to the harvest and provide the care he thought itneeded. Ben and the employee would load the produce in thecompany's truck, and take it the farmer's market three (3) timesper week. Once set up, Ben would spend some time talking with theother vendors and regular customers, and then return to the farm.The employee was responsible for cash sales to the marketcustomers. Some inventory was sold by the item, while otherinventory was sold by weight. They set up a small scale at thebooth each day to weigh produce. A portable cash register was alsotaken to register sales and provide receipts to customers. Theregister kept a duplicate copy of the receipts for reconciliation.The register also featured subtotaling features which would add thesales for the day. At the end of the day, Ben would return to helpload the remaining produce and close the produce stand for the day.He would change out the register tape, but like any good farmer,often left the tapes in a folder in his truck until he couldremember to take them into the house/office. At the end of eachweek, Ben's wife made a trip to the bank to deposit cash receiptsand to get the proper change/denominations to start the new week'scash box. Since her husband was so busy, she wasn't able to catchup with him to get the register receipts to match to deposits, soshe just counted the cash and deposited it. For his records, Benrecorded every detail of the harvest. He wanted to know how to planfor the next season. He recorded quantities and weights of produceharvested by variety. He tracked the harvest daily, but neverreconciled it to sales at the market and produce that was returnedfrom the market. Harvest continued to be exceptionally busy. As aresult, Ben could barely keep up with writing his employee a weeklypayroll check. When the bank statements came at the end of themonth, he was too busy for paperwork and failed to reconcilestatements until the following month. After all, he and his wifehad run the business for 10 years this way, he would catch up onpaperwork when it slowed down. At the end of the season, Benfinally slowed down enough to catch up on paperwork. He began toreview the bank statements, and noticed that deposits were lessthan they had been in prior years, when harvests had not been asgood. Ben was certain that he had sold more inventory. In fact, heknew he had because half-way through the season he had added anadditional day of sales (a 4th market) each week. Ben had helpedload the truck at the end of each day, and only a small amount everreturned to the farm. What could have happened? Did the employeehave something to do with this? Would Ben ever know how much helost? For this exercise, your job is to identify controls and putcontrols in place to prevent the loss of a company's liquid assets:cash & inventory. Identify appropriate controls to prevent theabove losses. Why do you believe those controls are needed and whywould they be effective?

ACC 250 Lecture Notes - Lecture 1: Perpetual Inventory

Document Summary

Get access

Related Documents

ACC 250 Lecture Notes - Lecture 4: Current Asset, Income Statement, Financial Statement

ACC 250 Lecture 5: Accounting Lecture Notes 5

ACCTG 211 Lecture Notes - Lecture 5: Perpetual Inventory, Income Statement, Retained Earnings

Related Questions