Task Team of FUNdaMENTAL aCCOUNtIng School of Business. Sun Yat-sen University Lesson notes Lesson 7 Merchandise Inventories and cost of sales Learning objective 1. Identify the items included in merchandise inventory 2. Identify the costs of merchandise inventory 3. Compute the cost of goods sold and ending merchandise inventory in a per petual system using the costing methods of specific identification, moving weighted average, FIFO, and LIFO 4. Analyze the effects of the choice between inventory costing methods on financial reporting 5. Compute the lower of cost or market value of inventory 6. Analyze the effects of inventory errors on current and future financial statements 7. Apply both the gross profit and retail methods to estimate inventor Teaching hours Students major in accounting: 5 hours Teaching Contents While sales and purchases are the focus of operations, inventory is no less important iventory costing and evaluation methods can substantially influence the bottom line. Since China's listed companies were permitted to write down inventories in 1998, inventory has long been criticized as the"income adjustor".Besides, inventory costing policies and the e sco inventory can also significant change the current and future years'income numbers Items included in inventory Merchandise inventory includes goods held for resale. Assets not normally held for resale are excluded from merchandise inventory An important aspect of inventory accounting is determining inventory ownership. Goods in transit are to be included in the buyers inventory when ownership has passed to the buyer. If the buyer is responsible for freight charges(FOB factory or shipping point), ownership passes to th buyer as soon as goods are loaded aboard the carrier. If the seller pays for the freight charg (FOB destination), ownership passes to the buyer only when the goods arrive at the destination When one company (the transferor or consignor) transfers inventory to another company (the transferee or consignee) without transferring title to that inventory, the arrangement is known as a consignment Goods on consignment belong to the owner(consignor) even though they are physically located at the consignee's business place. Consigned goods should be omitted from the consignee's inventory count. When the goods are ultimately sold, the consignee will remit to the consignor an amount equal to the selling price of the goods, less any commissions and reimbursable expenses incurred by the consigneeTask Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Yat-sen University 1 Lesson Notes Lesson 7 Merchandise Inventories and Cost of Sales Learning Objectives 1. Identify the items included in merchandise inventory. 2. Identify the costs of merchandise inventory. 3. Compute the cost of goods sold and ending merchandise inventory in a perpetual system using the costing methods of specific identification, moving weighted average, FIFO, and LIFO. 4. Analyze the effects of the choice between inventory costing methods on financial reporting. 5. Compute the lower of cost or market value of inventory. 6. Analyze the effects of inventory errors on current and future financial statements. 7. Apply both the gross profit and retail methods to estimate inventory. Teaching Hours Students major in accounting: 5 hours Other students: 3 hours Teaching Contents While sales and purchases are the focus of operations, inventory is no less important. Inventory costing and evaluation methods can substantially influence the bottom line. Since China’s listed companies were permitted to write down inventories in 1998, inventory has long been criticized as the “income adjustor”. Besides, inventory costing policies and the scope of inventory can also significant change the current and future years’ income numbers. Items included in inventory Merchandise inventory includes goods held for resale. Assets not normally held for resale are excluded from merchandise inventory. An important aspect of inventory accounting is determining inventory ownership. Goods in transit are to be included in the buyer’s inventory when ownership has passed to the buyer. If the buyer is responsible for freight charges (FOB factory or shipping point), ownership passes to the buyer as soon as goods are loaded aboard the carrier. If the seller pays for the freight charges (FOB destination), ownership passes to the buyer only when the goods arrive at the destination. When one company (the transferor or consignor) transfers inventory to another company (the transferee or consignee) without transferring title to that inventory, the arrangement is known as a consignment. Goods on consignment belong to the owner (consignor) even though they are physically located at the consignee’s business place. Consigned goods should be omitted from the consignee’s inventory count. When the goods are ultimately sold, the consignee will remit to the consignor an amount equal to the selling price of the goods, less any commissions and reimbursable expenses incurred by the consignee