Lecture Principles of accounting (2005): Chapter 10 - Inventories. Chapter 10 presents the management issues associated with inventories, including a detailed discussion of the costing of inventories for financial reporting. | Inventories Multimedia Slides by: Gail A. Mestas, MAcc, New Mexico State University Chapter 10 Learning Objectives Identify and explain the management issues associated with accounting for inventories. Define inventory cost and relate it to goods flow and cost flow. Calculate the pricing of inventory, using the cost basis under the periodic inventory system. Learning Objectives (cont’d) Apply the perpetual inventory system to the pricing of inventories at cost. State the effects of inventory methods and misstatements of inventory on income determination, income taxes, and cash flows. Apply the lower-of-cost-or-market (LCM) rule to inventory valuation. Supplemental Objective Estimate the cost of ending inventory using the retail method and gross profit method. Management Issues Associated with Accounting for Inventories Objective 1 Identify and explain the management issues associated with accounting for inventories Inventory is considered a current asset because it will normally be | Inventories Multimedia Slides by: Gail A. Mestas, MAcc, New Mexico State University Chapter 10 Learning Objectives Identify and explain the management issues associated with accounting for inventories. Define inventory cost and relate it to goods flow and cost flow. Calculate the pricing of inventory, using the cost basis under the periodic inventory system. Learning Objectives (cont’d) Apply the perpetual inventory system to the pricing of inventories at cost. State the effects of inventory methods and misstatements of inventory on income determination, income taxes, and cash flows. Apply the lower-of-cost-or-market (LCM) rule to inventory valuation. Supplemental Objective Estimate the cost of ending inventory using the retail method and gross profit method. Management Issues Associated with Accounting for Inventories Objective 1 Identify and explain the management issues associated with accounting for inventories Inventory is considered a current asset because it will normally be sold within a year’s time or within a company’s operating cycle Merchandising entities Merchandise inventory consists of all goods owned and held for sale in the regular course of business Manufacturing entities Maintain other types of inventories Raw Materials Work in Process Finished Goods Management Issues Associated with Accounting for Inventories Applying the matching rule to inventories Assessing the impact of inventory decisions Evaluating the level of inventory Applying the Matching Rule to Inventories A major objective of accounting for inventories is the proper determination of income (not to determine the most realistic inventory value) This is achieved through the process of matching appropriate costs against revenues Recall that cost of goods sold is dependent upon the cost assigned to ending inventory, or goods not sold The higher the cost of ending inventory The lower the cost of goods sold And, the lower the cost of goods sold, the higher the gross margin Gross margin .
