Inventory and Goods Sold Merchandising Essay

Submitted By Danielle-Musca
Words: 1011
Pages: 5
Open Document
Chapter 6 outline: Inventory and Cost of Goods Sold

Merchandising Companies: perchance inventories that is primarily in finished form for resale to customers.
There are two types of merchandising companies
1. Wholesalers: resell inventory to retail companies or professional users.
2. Retailers: purchase inventories from manufactures or wholesalers and then sell this inventory to end users. Ex. Best buy, target

Manufacturing Companies: manufacture the inventories they sell, rather than buying them in finished form from suppliers. Ex apple, coke

Inventory for a manufacturers have three categories:
Raw materials: cost of components that will become part of the finished product but have not yet been used in production
Work in process: products that have started the production process but are not yet complete at the end of period
Finished goods: items that are complete.

Inventories journey begins when manufacturing companies purchase raw materials hire workers and incur manufacturing overhead during production. One the products are finished manufactures pass inventories to mechanizing companies, whether wholesalers or retailers. Merchandising companies then sell inventories to you, the end users.

Cost of Goods Sold:

Inventory represents the cost of inventory not sold, and cost of goods sold represents the cost of inventory sold.

Beginning Inventory
+purchases
Cost of goods available for sale
-Ending inventory
Cost of goods Sold

Inventory Cost Metholds:

Specific Identification:
Matches-identifies- each unit of inventory with its actual cost.
For example: Fine Jewelry, cars, artwork.
This method is only practical for companies selling unique, expensive products with low sales volume.

First in, First out:
We assume the first units purchases are the first ones sold.
We assume the beginning inventory sells first, followed by the inventory from the first purchase during the year, followed by the inventory from the second purchase during the year, and so on.

Note: Companies are allowed to report inventory costs by assuming which units of inventories are sold and not sold even if this does not match the actual flow.

Last in, First Out:
We assume the last units purchased are the first ones sold.

Note: Nearly all companies sell their actual inventory in a FIFO manner; but they are allowed to report it as if they sold it in a LIFO manner.

Weighted Average:
We assume that both cost of goods sold and ending inventories consist of a random mixture of all goods available for sale.

To Calculate the cost at the end of the year:

Cost of goods available for sale
Number of units available for sale

FIFO:
Assumes the lower costs of the easliers purchases become cost of goods sold first, leaving higher costs of the later purchases in ending inventory.

Accountants usually call FIFO the balance sheet approach because it better approximates the current cost of inventory.

Most companies follow FIFO
Results in higher ending inventory, lower cost of goods sold and higher reported profit then LIFO

LIFO:
Will report both the lowest inventory and lowest gross profit.
Accountants Call LIFO the income statement approach because it reports the cost of goods sold more realistically matches the current cost of inventory needed to produce current revenues.
The primary benefit from choosing LIFO is tax savings.

LIFO conformity rule: requires a company that uses LIFO for tax reporting to also use LIFO for financial reporting.

Recording Inventory Transactions:
Perpetual Inventory System: With the help of scanners and bar caods keep a continual recors of inventory. Which helps a company better manage its inventory levels.

Recording inventory purchases and sales
Debit: Inventory
Credit : Accounts Payable

On July 17 Mario sold 300 units of inventory on account for $15 each, resulting in a totoal sales of 4,500. WE MAKE TWO ENTIRES TO RECORD THE SALE!
First entry shows the increase to the asset account
The second entry adjusts
Show More

Related Documents: Inventory and Goods Sold Merchandising Essay

AIPOD FND154 W3A1 Sah K Essay

Harrison FND154 30 May 2015 W3A1 In a merchandising company, the primary source of revenues is the selling of the merchandise, which is referred to as sales revenue or simply, sales. Service companies depend on providing the most high quality services to earn their sales. Unlike expenses for a service company, expenses for a merchandising company are divided into two main categories. The first category is the cost of goods sold, or the total cost of merchandise sold during the period. The second category…

Words 515 - Pages 3

Notes On Managerial Accounting

management. 3. Define the 3 classes of manufacturing costs. 4. Distinguish between product and period costs. 5. Explain the differences between a merchandising and a manufacturing income statement. Chapter 1-3 Study Study Objectives Objectives 6. Indicate how cost of goods manufactured is determined. 7. Explain the difference between a merchandising and a manufacturing balance sheet. 8. Identify trends in managerial accounting. Chapter 1-4 Managerial Managerial Accounting Accounting Managerial…

Words 2485 - Pages 10

Supply Chain Management - L.L. Bean Essay

Summary – By adopting five new proposed initiatives, the L.L.Bean Factory Store Division can provide brand appropriate product to customers and it can also improve its in-stock position and inventory turns while reducing costs in the Supply-Chain and management of corporate inventory. If we leverage a Special Purchase strategy and negotiate with existing vendors to sell us all their manufacturing defects of existing L.L.Bean products at an agreed upon reduced rate, we can…

Words 2525 - Pages 11

Case Analysis Essay

University 1. Describe Costco Business Model. According to CMU (2010), the Costco business model was “to generate high sales volumes and rapid inventory turnover by offering members low prices on a limited selection of nationally branded and selected private-label products in a wide range of merchandise categories” (p.388). * Rapid inventory turnover – When combined with efficiencies gained through bulk purchasing, sound logistics, and minimal product handling, Costco is able to operate…

Words 904 - Pages 4

Costco Wholesale Corp.: Mission, Business Model, and Strategy Essay

along with quick inventory turnover, which is made possible by low prices and limited product selection. This business model is appealing for them and has many benefits. Firstly, by setting up the business approach to rapidly turning over inventory, the company is often able to sell their products and pay suppliers before the invoice is due, even when the company pays early to benefit from early payment discounts. This frees up capital which allows Costco to finance new inventory purchases with supplier…

Words 1109 - Pages 5

Managerial Accounting Chapt 2 Essay

Building Blocks of Managerial Accounting 1) Service companies must carry a large amount of inventory to meet consumer demand. Answer: FALSE Diff: 1 LO: 2-1 EOC: E2-1 AACSB: Reflective Thinking Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in costs and volume on a company's profits 2) Manufacturing companies usually have three types of inventory. Answer: TRUE Diff: 1 LO: 2-1 EOC: E2-1 AACSB: Reflective Thinking Learning Outcome:…

Words 26573 - Pages 107

Wal-mart Essay

distribution and inventory systems. He then leveraged the inventory data collected to aggressively price Walmart products. Through his leadership, Walmart has presented itself as a value leader by keeping prices low and costs even lower. Since the first store opened in 1945 Walmart has used inventory management, cost cutting, and low prices to drive turnover and increase sales volume. Walmart was an early adopter of Information Technology and has leveraged advances in that field to master inventory control…

Words 785 - Pages 4

Essay on Dollar General

the ability to supply low cost products. Threat of Substitute Products In an industry whose top 3 selling products are household cleaners, seasonal decorations, and wrapping paper. Consumers have limitless options to where else they can purchase goods. Most consumers that shop at Dollar General live below the poverty line so quality and brand name is not the reason they are shopping there. This leads to a very serious threat of substitute products at a lower price. Internal Environment Dollar…

Words 2844 - Pages 12

Ch 47 Homework Essay

product cost and a period cost. - Product costs include all costs involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. Product costs “attach” to units of product as the goods are purchased or manufactured, and they remain attached as the goods go into inventory awaiting sale. Period costs are all the costs that are not product costs. All selling and administrative expenses are treated as period…

Words 1131 - Pages 5

Executive Summary Myer Holdings Pty Ltd Essay

the retail market whilst expanding its relevance and target demographic. They have invested over 600 million dollars in capital to deliver the best possible merchandise and to maintain this level of excellence with the introduction of the latest merchandising and point-of-sale systems. These measures have been imperative in the survival of Myer Holdings in its current economic climate where sales profits have reduced over the last few years, moving the focus to the customer experience. These strategies…

Words 2987 - Pages 12