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Chapter6-1
Chapter
6
Inventories
Accounting Principles, Ninth Edition
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Chapter6-2
1. Menggambarkan langkah2 dalam menentukan jumlahinventory .
2. Menjelaskan akuntansi utk inventories danpenerapan metode inventory cost flow .
3. Menjelaskan dampak financial dari asumsiinventory cost flow .
4. Menjelaskan the lower-of-cost-or-market basis ofaccounting utk inventories.
5. Menunjukkan dampak dari kesalahan nventoryterhadap lap keuangan.
6. Menghitung dan menginterpretasikan inventory
turnover ratio.
Study Objectives
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Chapter6-3
Statement
Presentation
and Analysis
Reporting and Analyzing Inventory
Taking a
physical
inventory
Determining
ownership of
goods
Classifying
Inventory
Determining
Inventory
Quantities
Inventory
Costing
Inventory
Errors
Finished
goods
Work in
process
Raw materials
Specific
identification
Cost flow
assumptions
Financial
statement
and tax
effects
Consistent
use
Lower-of-
cost-or-
market
Income
statement
effects
Balance sheet
effects
Presentation
Analysis
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Chapter6-4
Classifying Inventory
One Classification:
Merchandise Inventory
Three Classifications:
Raw MaterialsWork in Process
Finished Goods
MerchandisingCompany
ManufacturingCompany
Regardless of the classification, companies report allinventories under Current Assets on the balance sheet.
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Chapter6-5
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Chapter6-7
Mencakup penghitungan, penimbangan (weighing),atau pengukuran setiap jenis inventory on hand.
Dilakukan :
Pada saat tutup buku atau ketika aktivitastidak terlalu sibuk.
Pada akir periode akuntansi
Taking a Physical Inventory
Determining Inventory Quantities
SO 1 Describe the steps in determining inventory quantities.
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Chapter6-8
Goods in Transit/ barang dalam perjalanan
Barang yg dibeli belum diterima
Barang yang dijual belum dikirim.
Menentukan kepemilikan barang
Determining Inventory Quantities
SO 1 Describe the steps in determining inventory quantities.
Goods in transit dimasukkan sebagai inventory sesuaidengan legal title barang tersebut. Legal titleditentukan oleh syarat jual beli.
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Chapter6-9
Determining Inventory Quantities
SO 1 Describe the steps in determining inventory quantities.
Illustration 6-1
Ownership of the goodspasses to the buyer whenthe public carrier acceptsthe goods from the seller.
Ownership of the goods
remains with the selleruntil the goods reach the
buyer.
Terms of Sale
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Chapter6-10
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Chapter6-11
Determining Inventory Quantities
SO 1 Describe the steps in determining inventory quantities.
Illustration 6-1
Kepemilikan barangberpindah kepada
pembeli/buyer ketikabarang sudah diterima olehpublic carrier dari penjual/
seller.
Kepemilikan barang tetap
pada seller samapaibarang diterima oleh
buyer.
Terms of Sale
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Chapter6-12
Goods in transit should be included in theinventory of the buyer when the:
a. public carrier accepts the goods from theseller.
b. goods reach the buyer.
c. terms of sale are FOB destination.d. terms of sale are FOB shipping point.
Review Question
Determining Inventory Quantities
SO 1 Describe the steps in determining inventory quantities.
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Chapter6-13
Consigned Goods/ barang konsinyasi
Menjualkan barang milik orang lain utkmemperoleh fee, tanpa memiliki barangtersebut. (barang titipan)
Disebut barang konsinyasi/ consigned goods.
Determining Ownership of Goods
Determining Inventory Quantities
SO 1 Describe the steps in determining inventory quantities.
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Chapter6-14
Unit costs can be applied to quantities on handusing the following costing methods:
Specific Identification
First-in, first-out (FIFO)
Last-in, first-out (LIFO)
Average-cost
Inventory Costing
SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Cost FlowAssumptions
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Chapter6-15
An actual physical flow costing methodin whichitems still in inventory are specifically costed to
arrive at the total cost of the ending inventory.Practice is relatively rare.
Most companies make assumptions (Cost Flow
Assumptions) about which units were sold.
Specific Identification Method
Inventory Costing
SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
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Chapter6-16
Illustration: Assume that Crivitz TV Company purchasesthree identical 46-inch TVs on different dates at costsof $700, $750, and $800. During the year Crivitz soldtwo sets at $1,200 each.
Inventory Costing
SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Illustration 6-2
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Chapter6-17
Illustration: If Crivitz sold the TVs it purchased onFebruary 3 and May 22, then its cost of goods sold is$1,500 ($700 $800), and its ending inventory is $750.
Inventory Costing
SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Illustration 6-3
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Chapter6-18 SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Inventory Costing Cost Flow Assumptions
Illustration 6-11Use of cost flow methods inmajor U.S. companies
Cost Flow Assumption
does not need to equal
Physical Movement of
Goods
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Chapter6-19
Inventory Costing Cost Flow Assumptions
SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Illustration: Assume that Houston Electronics uses aperiodic inventory system.Illustration 6-4
A physical inventory at the end of the year determined thatduring the year Houston sold 550 units and had 450 units ininventory at December 31.
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Chapter6-20
Earliest goods purchased are first to be sold.
Often parallels actual physical flow ofmerchandise.
Generally good business practice to sell oldestunits first.
First-In-First-Out (FIFO)
SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Inventory Costing Cost Flow Assumptions
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Chapter6-21 SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Inventory Costing Cost Flow Assumptions
First-In-First-Out (FIFO) Illustration 6-5
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Chapter6-22 SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Inventory Costing Cost Flow Assumptions
First-In-First-Out (FIFO) Illustration 6-5
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Chapter6-23
Latest goods purchased are first to be sold.
Seldom coincides with actual physical flow ofmerchandise.
Exceptions include goods stored in piles, such ascoal or hay.
Last-In-First-Out (LIFO)
SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Inventory Costing Cost Flow Assumptions
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Chapter6-24
Last-In-First-Out (LIFO)
SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Inventory Costing Cost Flow Assumptions
Illustration 6-7
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Chapter6-26
Allocates cost of goods available for sale on thebasis of weighted average unit costincurred.
Assumes goods are similar in nature.
Applies weighted average unit cost to the unitson hand to determine cost of the ending
inventory.
Average-Cost
SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Inventory Costing Cost Flow Assumptions
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Chapter6-27
Average Cost
SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Inventory Costing Cost Flow Assumptions
Illustration 6-10
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Chapter6-28 SO 2 Explain the accounting for inventories andapply the inventory cost flow methods.
Inventory Costing Cost Flow Assumptions
Average Cost Illustration 6-10
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Chapter
6-29 SO 3 Explain the financial effects of the inventory cost flow assumptions.
Inventory Costing Cost Flow Assumptions
Financial Statement and Tax Effects Illustration 6-12
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Chapter
6-31
In a period of inflation, the cost flow methodthat results in the lowest income taxes is the:
a. FIFO method.b. LIFO method.
c. average cost method.
d. gross profit method.
Review Question
Inventory Costing Cost Flow Assumptions
SO 3 Explain the financial effects of the inventory cost flow assumptions.
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Chapter
6-32
Q6-12 Casey Company has been using the FIFO
cost flow method during a prolonged period of
rising prices. During the same time period,
Casey has been paying out all of its net income
as dividends. What adverse effects may
result from this policy?
Discussion Question
See notes page for discussion
Inventory Costing Cost Flow Assumptions
SO 3 Explain the financial effects of the inventory cost flow assumptions.
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Chapter
6-33
Using Cost Flow Methods Consistently
Inventory Costing
Method should be used consistently, enhancescomparability.
Although consistency is preferred, a companymay change its inventory costing method.
Illustration 6-14Disclosure of changein cost flow method
SO 3 Explain the financial effects of the inventory cost flow assumptions.
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Chapter
6-35
Lower-of-Cost-or-Market
Inventory Costing
SO 4 Explain the lower-of-cost-or-marketbasis of accounting for inventories.
When the value of inventory is lower than its cost
Companies can write down the inventory to its
market value in the period in which the pricedecline occurs.
Market value = Replacement Cost
Example of conservatism.
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Chapter
6-36
Lower-of-Cost-or-Market/Terendah C or M
Inventory Costing
SO 4 Explain the lower-of-cost-or-marketbasis of accounting for inventories.
Jika nilai inventory lebih rendah drpd cost nya
Perusahaan dapat menurunkan/ write down the
inventory ke market value dlm periode ketikaterjadi penurunan harga.
Market value = Replacement Cost
Example of conservatism.
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Chapter
6-38
Inventory Errors
SO 5 Indicate the effects of inventory errors on the financial statements.
Common Cause:
Failure to count or price inventory correctly.
Not properly recognizing the transfer oflegal title to goods in transit.
Errors affect both the income statement andbalance sheet.
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Chapter
6-39
Inventory Errors
SO 5 Indicate the effects of inventory errors on the financial statements.
Inventory errors affect the computation of cost ofgoods sold and net income.
Income Statement Effects
Illustration 6-17
Illustration 6-16
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Chapter
6-40
Inventory Errors
SO 5 Indicate the effects of inventory errors on the financial statements.
Inventory errors affect the computation of cost of goodssold and net income in two periods.
An error in ending inventory of the current periodwill have a reverse effect on net income of thenext accounting period.
Over the two years, the total net income is correct
because the errors offset each other.The ending inventory depends entirely on theaccuracy of taking and costing the inventory.
Income Statement Effects
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Chapter
6-41
Inventory Errors
SO 5 Indicate the effects of inventory errors on the financial statements.
Incorrect Correct Incorrect Correct
Sales 80,000$ 80,000$ 90,000$ 90,000$
Beginning inventory 20,000 20,000 12,000 15,000
Cost of goods purchased 40,000 40,000 68,000 68,000
Cost of goods available 60,000 60,000 80,000 83,000Ending inventory 12,000 15,000 23,000 23,000
Cost of good sold 48,000 45,000 57,000 60,000
Gross profit 32,000 35,000 33,000 30,000
Operating expenses 10,000 10,000 20,000 20,000
Net income 22,000$ 25,000$ 13,000$ 10,000$
2010 2011
($3,000)Net Incomeunderstated
$3,000Net Incomeoverstated
Combined income for2-year period is correct.
Illustration 6-18
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Chapter
6-42
Understating ending inventory will overstate:
a. assets.
b. cost of goods sold.c. net income.
d. owner's equity.
Review Question
Inventory Errors
SO 5 Indicate the effects of inventory errors on the financial statements.
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Chapter
6-43
Inventory Errors
SO 5 Indicate the effects of inventory errors on the financial statements.
Effect of inventory errors on the balance sheet isdetermined by using the basic accounting equation:.
Balance Sheet Effects
Illustration 6-16
Illustration 6-19
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Chapter
6-44
Statement Presentation and Analysis
Balance Sheet- Inventory classified as current asset.
Income Statement- Cost of goods sold subtracted
from sales.
There also should be disclosure of
1) major inventory classifications,
2) basis of accounting (cost or LCM), and
3) costing method (FIFO, LIFO, or average).
Presentation
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Chapter
6-45
Statement Presentation and Analysis
Inventory management is a double-edged sword
1. High Inventory Levels- may incur high carrying
costs (e.g., investment, storage, insurance,obsolescence, and damage).
2. Low Inventory Levelsmay lead to stockouts andlost sales.
Analysis
SO 6 Compute and interpret the inventory turnover ratio.
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Chapter
6-47
Illustration: Wal-Mart reported in its 2008 annualreport a beginning inventory of $33,685 million, an endinginventory of $35,180 million, and cost of goods sold for the
year ended January 31, 2008, of $286,515 million. Theinventory turnover formula and computation for Wal-Mart
are shown below.
Statement Presentation and Analysis
SO 6 Compute and interpret the inventory turnover ratio.
Illustration 6-21
Days in Inventory: Inventory turnover of 8.3 times dividedinto 365 is approximately 44 days. This is the approximatetime that it takes a company to sell the inventory.
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C Fl M h d P l
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Chapter
6-49
Cost Flow Methods in Perpetual Systems
SO 7 Apply the inventory cost flow methods to perpetual inventory records.
First-In-First-Out (FIFO)
Cost of Goods SoldEnding Inventory
Illustration 6A-2
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C Fl M h d i P l S
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Chapter
6-51
Cost Flow Methods in Perpetual Systems
SO 7 Apply the inventory cost flow methods to perpetual inventory records.
Average Cost (Moving-Average System)Illustration 6A-4
Cost of Goods Sold Ending Inventory
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Chapter
6-52
Estimating Inventories
The gross profit method estimates the cost of endinginventory by applying a gross profit rate to net sales.
Gross Profit Method
SO 8 Describe the two methods of estimating inventories.
Illustration 6B-1
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Chapter
6-53
Estimating Inventories
Illustration: Kishwaukee Companys records for January shownet sales of $200,000, beginning inventory $40,000, and cost ofgoods purchased $120,000. The company expects to earn a 30%gross profit rate. Compute the estimated cost of the endinginventory at January 31 under the gross profit method.
SO 8 Describe the two methods of estimating inventories.
Illustration 6B-2
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Chapter
6-54
Estimating Inventories
Company applies the cost-to-retail percentage to endinginventory at retail prices to determine inventory at cost.
Retail Inventory Method
SO 8 Describe the two methods of estimating inventories.
Illustration 6B-3
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Chapter
6-55
Estimating Inventories
SO 8 Describe the two methods of estimating inventories.
Note that it is not necessary to take a physical inventory todetermine the estimated cost of goods on hand at any given time.
Illustration 6B-4Illustration:
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Chapter
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