1. Inventories
H0032
* Property of STI
Page 1 of 16
INVENTORIES
Inventory Items
Flow of Inventory Costs
Cost of Goods
Available for
Sale
Ending
Inventory
Cost of
Goods Sold
Beginning
Inventory
Purchases
2. Inventories
H0032
* Property of STI
Page 2 of 16
Inventory Items
(Amounts in
millions)
Beginning Inventory P 276
+ Net purchases 1,348
= Cost of goods available for sale 1,624
- Ending inventory 317
= Cost of goods sold P 1,307
Types of companies
o Merchandising company
o Manufacturing company
o Service organization
3. Inventories
H0032
* Property of STI
Page 3 of 16
Cost of Inventory
1. Determining the Quantity of Inventory
o FOB (Free on Board)
FOB Shipping Point
FOB Destination
o Consigned Goods
2. Determining the Unit Cost of Inventory
Figuring the Cost of Inventory
4. Inventories
H0032
* Property of STI
Page 4 of 16
Inventory Costing Methods
1. Specific Unit Cost
2. Average Costs Method
3. First-in, First-out Cost
4. Last-in, First-out Cost
Inventory & Cost of Goods Sold under Average,
FIFO & LIFO Inventory Costing Methods
13. Inventories
H0032
* Property of STI
Page 13 of 16
Methods of Estimating Inventory
1. Gross Margin (Gross Profit) Method
Beginning inventory
+ Net purchases
= Cost of goods available for sale
- Cost of goods sold
= Ending inventory
Gross Margin Method of Estimating Inventory
(amounts assumed)
Beginning inventory ……………………………. P 140,000
Net purchases ……………………………………… 660,000
Cost of goods available for sale …………. 800,000
Cost of goods sold:
Net sales revenue…………………………….. P 1,000,000
Less estimated gross margin of 40%... 400,000
Estimated cost of goods sold …………… 600,000
Estimated cost of ending inventory ……. P 200,000
14. Inventories
H0032
* Property of STI
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Methods of Estimating Inventory
2.Retail Method
Retail Method of Estimating Inventory (amounts
assumed)
15. Inventories
H0032
* Property of STI
Page 15 of 16
Periodic and Perpetual Inventory System
Periodic Inventory System
Perpetual Inventory System
16. Inventories
H0032
* Property of STI
Page 16 of 16
Internal Control over Inventory
1. Physically counting inventory at least once a
year.
2. Maintaining efficient purchasing, receiving &
shipping procedures.
3. Storing inventory to prevent against theft,
damage & decay.
4. Limiting access to personnel.
5. Keeping perpetual inventory records for high-
unit-cost merchandise.
6. Purchasing inventory in economical quantities.
7. Keeping enough inventories on hand.
8. Avoid tying up money in items that are not
needed.