This document summarizes a presentation by the FIREFLY team on inventories. It defines inventory as goods companies have on hand. There are three types: raw materials, work in process, and finished goods. Methods for valuing inventory include LIFO, FIFO, and weighted average. Taking a physical inventory and determining ownership are required to calculate ending inventory balances. The choice of inventory cost flow method affects income statements, balance sheets, and taxes. Consistent use of the same method enhances financial statement comparability.

2. Team: FIREFLY
Team leader: FAISALAHMED
ID NO: 2-15010224
Team member
SHOMORIO RITCHEL
ID NO: 2-15010209
PROVAT RAKSAM
ID NO: 2-15010214
HIMADHRI MONDAL
ID NO: 2-15010228
ISTAK JAHAN AJANTA
ID NO: 2-15010230
SWAPNIL MAJUMDER
ID NO: 2-15010234

3. Our presentation is about
“INVENTORIES”.

4. What is inventory?
Inventory means company's goods on
hand, which is often a significant current
asset. Inventory serves as a buffer
between a company's sales of goods and
its production or purchase of goods.
Companies strive to find the proper
amount of inventory to avoid lost sales,
disruptions in production, high holding
costs, etc.

5. Classification of inventory:
There are three types of inventory.
1. Raw materials inventory
2. Working process inventory
3. Finished goods inventory

6. What is raw materials inventory?
Raw materials inventory is the total cost of
all component parts currently in stock that
have not yet been used in work-in-process
or finished goods production.

7. What is work in process inventory?
Work-in-process inventory is materials that
have been partially converted through the
production process. These items are
typically located in the production area.
The valuation of this inventory may be
stored in a separate work-in-process
account in the general ledger.

8. What is finished goods inventory?
Finished goods are goods that have been
completed by the manufacturing
process, or purchased in a completed
form, but which have not yet been sold
to customers. Goods that have been
purchased in completed form are known
as merchandise.

9. Method for controlling inventory:
There are 3 method for controlling
inventory.
1. Last In First Out (LIFO)
2. First In First Out (FIFO)
3. Weighted Average

10. What is LIFO?
The last-in, first-out (LIFO) method assumes
that the latest goods purchased are the first to
be sold. LIFO seldom coincides with actual
physical flow of inventory. Under the LIFO
method, the costs of goods purchased are the
first to be recognized in determining cost of
goods sold.

11. What is FIFO?
The first-in, first-out (FIFO) method assumes
that the earliest goods purchased are the first
to be sold. FIFO often parallels the actual
physical flow of merchandise. Under the
FIFO method, therefore, the cost of the
earliest goods purchased are the first to be
recognized in determining cost of goods sold.

12. What is weighted-average?
The weighted average-method allocates
the cost of goods available for sale on the
basis of weighted-average unit cost. The
weighted-average method assumes that
goods are similar in nature.

13. Determining inventory quantities:
All companies need to determine inventory
quantities at the end of the accounting
period. If using a perpetual system,
companies take a physical inventory for the
following reasons:
1. To check the accuracy of their
perpetual inventory records.
2. To determine the amount of inventory
lost due to wasted raw materials,
shoplifting or employee theft.

14. Companies using a periodic inventory
system take a physical inventory for two
different purposes:
1. To determine the inventory on hand at
the balance sheet date;
2. To determine the cost of goods sold
for the period.

15. Determining inventory quantities involves
two steps:
1. Taking a physical inventory of goods on
hand
2. Determine the ownership of goods.

16. Taking a physical inventory:
Companies take a physical inventory at the
end of the accounting period. Taking a
physical inventory involves actually
counting, weighing, or measuring each
kind of inventory on hand.

17. Determine ownership of goods:
Goods in transit: A complication in
determining ownership is goods in
transit (on vehicle) at the end of the
period. The company may have
purchased goods that have not yet been
received. To arrive at an accurate count
the company must determine ownership
of these goods.

18. Consigned goods:
In some lines of business, it is common to
hold the goods of other parties and try to sell
the goods for them for a fee, but without
taking ownership of the goods. These are
called consigned goods.

19. Financial statement and tax effects of
cost flow methods:
The reasons companies adopt different
inventory cost flow methods are varied, but
usually involve one of three factors:
1. Income statement effects;
2. Balance sheet effects;
3. Tax effects

20. Income statement effects:
In periods of changing prices, the cost flow
assumption can have a significant impact on
income and on evaluations based on income.
If the prices are rising day by day FIFO
produces higher net income than LIFO or if
the prices are going down day by day LIFO
produces higher net income than FIFO.

21. Balance sheet effect:
A major advantage of the FIFO method is
that in a period of inflation, the costs
allocated to ending inventory will
approximate their current cost.
A major shortcoming of the LIFO method is
that in a period of inflation, the costs
allocated to ending inventory may be
significantly understated in terms of current
cost

22. Tax effects:
When the price are rising day by day than
LIFO produces lower tax. Because it makes
lower income.
On the other hand if the prices are going
down than FIFO produces lower tax.

23. Using inventory cost flow methods
consistently:
Whatever cost flow method a company
chooses, it should use that method
consistently from one accounting period to
another. This approach is often referred to as
the consistency concept, which means that a
company uses the same accounting principles
and methods from year to year.

24. Consistent application enhances the
comparability of financial statements over
successive time periods.
Although consistent application is
preferred, it does not mean that a company
may never change its inventory costing
method. When a company adopts a
different method, it should disclose in the
financial statements the change and its
effect on net income.

25. We hope you enjoyed our presentation.

26. THANK YOU