© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
1
periodic
perpetual
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
2
• continuously discloses inventory on hand
• increases in inventory debited to Inventory
(and posted to subsidiary ledger)
• two entries to record sales transactions
REVENUE:
Accounts Receivable -- Customer retail
Sales
retail
REDUCTION IN INVENTORY:
Cost of Goods Sold
cost
Inventory
cost
• physical inventory still needed annually to
compare with and update inventory records
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
3
• increases recorded in Purchases
• at time of sale, record revenue but
no entry for reduction in inventory
• physical inventory (actual count)
necessity at end of period to
determine cost of goods sold
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
4
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
5
• necessity for both periodic and perpetual
• goal: count every item; do not count any item
twice
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
6
• necessity for both periodic and perpetual
• goal: count every item; do not count any item
twice
• have plan and follow it
– establish proper “cut-off” of transactions
As seen in Home Depot,
October
12,Gregg.
2011 All Rights Reserved.
© Copyright 1999, 2005, 2011
by M. Ray
7
• necessity for both periodic and perpetual
• goal: count every item; do not count any item
twice
• have plan and follow it
– establish proper “cut-off” of transactions
– business often closes in order to count
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
8
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
9
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
10
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights
Reserved.
11
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
12
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
13
• necessity for both periodic and perpetual
• goal: count every item; do not count any item
twice
• have plan and follow it
– establish proper “cut-off” of
transactions
– business often closes in
order to count
– best to count in
“teams” of two
As seen in Home Depot,
October 12, 2011
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
14
• necessity for both periodic and perpetual
• goal: count every item; do not count any item
twice
• have plan and follow it
– establish proper “cut-off” of transactions
– business often closes in order to count
– best to count in “teams” of two
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
15
• necessity for both periodic and perpetual
• goal: count every item; do not count any item
twice
• have plan and follow it
– establish proper “cut-off” of transactions
– business often closes in order to count
– best to count in “teams” of two
• shipping terms determine when title passes
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
16
• necessity for both periodic and perpetual
• goal: count every item; do not count any item
twice
• have plan and follow it
– establish proper “cut-off” of transactions
– business often closes in order to count
– best to count in “teams” of two
• shipping terms determine when title passes
– FOB SP
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
17
• necessity for both periodic and perpetual
• goal: count every item; do not count any item
twice
• have plan and follow it
– establish proper “cut-off” of transactions
– business often closes in order to count
– best to count in “teams” of two
• shipping terms determine when title passes
– FOB SP -- title passes when goods are shipped
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
18
• necessity for both periodic and perpetual
• goal: count every item; do not count any item
twice
• have plan and follow it
– establish proper “cut-off” of transactions
– business often closes in order to count
– best to count in “teams” of two
• shipping terms determine when title passes
– FOB SP -- title passes when goods are shipped
– FOB D
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
19
• necessity for both periodic and perpetual
D
• goal: count every item; do not count any item
B
twice
U
• have plan and follow it
Y – establish proper “cut-off” of transactions
Mack’s Trucking
E – business
often closes in order to count
R – best to count in “teams” of two
• shipping terms determine when title passes
– FOB SP -- title passes when goods are shipped
– FOB D -- title passes when goods arrive
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
20
• most active element
of a merchandising
business
• principal source of
revenue
• largest current asset
• largest deduction
from revenue
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
21
EI
GAFS
P
To Balance
Sheet
To
COGS
Income
Statement
BI
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights
Reserved.
22
Effects of Misstatement
Inventory
Net Income
Assets
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights
Reserved.
Capital
23
• in order expenditures
were made
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
24
• in order expenditures
were made -- FIFO
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
25
• in order expenditures
were made -- FIFO
• in reverse order in which
expenditures were made
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
26
• in order expenditures
were made -- FIFO
• in reverse order in which
expenditures were made - LIFO
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
27
• in order expenditures
were made -- FIFO
• in reverse order in which
expenditures were made - LIFO
• average of expenditures
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
28
Time Time Time Time Time Time Time Time Time
Balance Sheet
MI
Income Statement
COGS
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights
Reserved.
29
Balance Sheet
MI
Last In First OUT
Time Time Time Time Time Time Time Time Time
Income Statement
COGS
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
30
Time Time Time Time Time Time Time Time Time
Rising Prices
Balance Sheet
Income Statement
FIFO LIFO
MI
FIFO LIFO
COGS
NI
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
31
•
•
•
•
•
Extension of Lecture
Handout
Video Link on Class Web Site
Demonstration Exercise
Strongly recommended before
first HW assignment
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
32
© Copyright 1999, 2005, 2011 by M. Ray Gregg. All Rights Reserved.
33