Inventory notes

Question 1

Gross Profit Method

Answer 1

**Used only for interim financial statement as part of periodic inventory system only. Inventory valued at retail.

Beginning Inventory
add: Purchases
Equal: Cost of Goods Available for Sale
<minus: COGS>
Equal: Ending Inventory

Question 2

Lower of Cost or Market
(LIFO or Retail)
Find Middle Value

Answer 2

LIFO or Retail Inventory Method
*Lower of cost or market (middle vlaue)
*Market value = median of replacement cost, market ceiling and market floor.
*Market Ceiling= NRV minus “Cost to sell”
*Market Floor = Market Ceiling (NRV) minus normal profit margin
*Replacement Cost= Cost to Purchase the item at valuation date
*Compare middle value to original cost

Question 3

COGS Formula

Answer 3

Beginning Inventory
+Net Purchase
__________________________
= Good Available for Sale
-(Ending Inventory)
__________________________
COGS

Question 4

COGS Flow Chart in financial Statement

Answer 4

GAAP I/S
Sales
-(COGS)
__________________________________
Gross Margin
-(Sales/General/ Admin Expense)
__________________________________
Operating Income
+Nonoperating Income
-(Taxes)
_______________________________________
Income from Continuing Operations
+Discontinued Operations {net of tax}
_______________________________________
Net Income

Question 5

COGS Periodic Inventory System formula

Answer 5

Beginning Inventory
+Net Cost of Purchases
________________________
Cost of Goods Available for Sale
-(Ending Inventory)
________________________
COGS

Question 6

Periodic Inventory Journal Entry

Answer 6

At time of purchase
Dr. Purchase $$$
Cr. A/P or Cash $$$

At time of sale
Dr. Cash or A/R $$$
Cr. Sales Revenue $$$

Year End
Dr. Ending Inventory $$$
Dr. COGS (Plug) $$$
CR. Purchase $$$

Question 7

Perpetual Inventory Journal Entry

Answer 7

At time of purchase
Dr. Inventory $$$
Cr. A/P or Cash $$$

At Time of Sale
Dr. Cash or A/R $$$
Cr. Sales Revenue $$$
Dr. COGS $$$
Cr. Inventory $$$