Inventory

Question 1

Journal Entry for Periodic Inventory Systems

Answer 1

Purchases:
DR Purchases
CR Cash or A/P

Record periodically:
DR COGS
CR Inventory

Sales:
DR Cash or A/P
CR Sales

Question 2

Journal Entry for Perpetual Inventory System

Answer 2

Purchases:
DR Inventory
CR Cash or A/P

Sales:
DR COGS
CR Inventory
DR A/R
CR Sales

Question 3

Cost of Goods Sold Equation

Answer 3

Beg Inventory
+ Purchases
- End Inventory

Question 4

Weighted Average Method

Answer 4

Follows periodic inventory system. Homogenous products typically.

Equation:
Weighted Average Cost per Unit:
Total Inventory Costs Available
_____________________________________
Total number of units available

Question 5

Moving Average Method

Answer 5

Follows perpetual inventory system.
Requires re-calculation after every purchase of new inventory.
Excel set-up used to track purchases/sales and inventory balance.

Question 6

Lower of Cost and Net Realizable Value Method

Answer 6

Under U.S. GAAP, the lower of cost and net realizable value method is used for all inventory that is not costed using LIFO or the retail inventory method.

Question 7

Net Realizable Value Equation (For Inventory)

Answer 7

Net realizable value is the net selling price less the costs to complete and dispose of the inventory.

Question 8

Inventory valuation at lower of cost or market

Answer 8

Look at replacement cost, market ceiling and market floor, and that the middle value;

Replacement cost
Market Ceiling (net realizable value, “NRV”): Sales value - costs to complete or sell
Market Floor: NRV - Profit

Question 9

Perpetual vs. Periodic

Answer 9

Inventory record updated for each purchase and sale (Perpetual) vs. Inventory record updated at the end of the accounting period (Periodic)

Question 10

Inventory Turnover

Answer 10

Cogs / Avg Inventory

Question 11

Days in Inventory

Answer 11

Ending Inventory / (Cogs/365)

Question 12

Costs of inventory

Answer 12

-Freight in
-Consignor, still has title to the goods, freight costs
-In-transit insurance premium
-A cost necessary to bring the goods to their location, and that add “time” or “place” utility to the inventory

Question 13

Period Expenses, vs. Costs of inventory

Answer 13

Period expense includes interest on an inventory loan

Question 14

Market Floor

Answer 14

NRV - Profit

(NRV = Sale price - costs to complete or sell)

Question 15

Market Ceiling

Answer 15

Aka Net Realizable Value
= Sale price - costs to complete or sell