The document provides an overview of inventory accounting concepts including: 1) What is included in inventory and different inventory systems. 2) How inventory flows through different businesses like retailers and manufacturers. 3) Where inventory impacts the balance sheet and income statement. 4) The different cost flow assumptions used to value inventory like FIFO, LIFO, and average cost.

1. Let’s have a quick look at… …… what we have done in the previous class.

2. We started with …

3. Accounting for Inventory

4. First, we discussed…

5. What is Inventory?

8. Inventory Flow?

9. Flows of Inventory …A Retailer or A merchandiser Merchandise Purchases Cost of Goods Sold Merchandise Inventory Merchandiser

10. Flows of Inventory …A Producer or A Manufacturer Direct Labour Factory Overhead Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Cost of Goods Sold Manufacturer Raw Materials

11. Where cost flows of Inventory have impacts?

12. Balance Sheet… Raw Materials Work in Process Finished Goods Balance Sheet: Assets Side Manufacturing Overhead Labour

13. Profit and Loss Account … Profit and Loss Account: Expenses Side Opening Stock Purchases and Production and Conversions Expenses Closing Stock COST OF GOODS SOLD Raw Materials Work in Process Finished Goods Raw Materials Work in Process Finished Goods

14. Impact of Inventory Flow… Beginning Inventory Purchases for the Period Ending Inventory (Balance Sheet) Goods Available for Sale Cost of Goods Sold (Income Statement) + +

15. When to record Inventory in books of accounts?

18. Now, let’s proceed further… Any question?

20. What costs to be included in inventory?

28. What are inventory systems?

29. The issue of Inventory System is … … should we record transactions related to inventory INSTANTANEOUSLY or PERIODICALLY ?

30. If we record transactions related to inventory INSTANTANEOUSLY , then we are using a System of Inventory which is known as … PERPETUAL INVENTORY SYSTEM

31. And, if we are recording transactions related to inventory periodically then, it is called … PERIODIC INVENTORY SYSTEM .

36. How to find the Value of Inventory ?

37. The issue of Inventory Valuation requires… … an assumption about the flow of inventory so that we can judge the flow of cost of inventory!!!

40. Cost Flow Assumption #1 : Specific Identification

43. Where Specific Identification Method can be used? Examples: Automobiles, custom furniture, some types of jewelry, art.

44. Cost Flow Assumption #2 : FIFO – F ast I n, F irst O ut.

47. Cost Flow Assumption #3 : LIFO – L ast I n, F irst O ut.

50. Cost Flow Assumption #4 : Average Cost