Inventory Accounting

In: Business and Management

Submitted By sgoel4
Words 485
Pages 2
HW assignment #2-MGMT640-9040- DR Jiya jain | September 12
| Submit the Homework Assignment (3.2, 3.5, 3.20, & 3.26). | Sunita Goel |

Q. 3.2 Inventory accounting: Differentiate between FIFO and LIFO.
Ans 3.2 LIFO and FIFO are the 2 most common inventory valuation methods and affects both the balance sheet and income statement.
LIFO: last out, or LIFO, calls for the firm to attribute any sale made to the most recently acquired and most expensive inventory. During the inflationary prices period, the firm using this method would have the highest cost of goods sold, the lowest net income and lowest inventory value.
FIFO: First in, first out, or FIFO, refers to the practice of recognizing a sale as being made up of inventory that was purchased earlier and having the lowest cost. During rising prices, firm using FIFO will have lowest cost of goods sold, the highest net income and the highest inventory value.
FIFO reporting leads to higher current asset value and higher net income. Because inventory valuation methods can have a significant impact on both the income statement and the balance sheet, when financial analysts compare different companies, they make adjustments to the financial statements for differences in inventory valuation methods. Although firms can switch from one inventory valuation method to another, this type of change is an extraordinary event and cannot be done frequently.

Q. 3.5 Working capital: Laurel Electronics reported the following information at its annual meetings: The Company had cash and marketable securities worth $1,235,455, accounts payables worth $4,159,357, inventory of $7,121,599, accounts receivables of $3,488,121, short-term notes payable worth $1,151,663, and other current assets of $121,455. What is the company’s net working capital?
Ans 3.5 Laurel Electronics Working Capital | | Current Assets…...

Similar Documents


...Computers and Chemical Engineering 28 (2004) 929–941 Pharmaceutical supply chains: key issues and strategies for optimisation Nilay Shah∗ Centre for Process Systems Engineering, Department of Chemical Engineering, Imperial College of Science, Technology and Medicine, London SW7 2BY, UK Abstract Supply chain optimisation is now a major research theme in process operations and management. A great deal of research has been undertaken on facility location and design, inventory and distribution planning, capacity and production planning and detailed scheduling. Only a small proportion of this work directly addresses the issues faced in the pharmaceutical sector. On the other hand, this sector is very much ready for and in need of sophisticated supply chain optimisation techniques. At the supply chain design stage, a particular problem faced by this industry is the need to balance future capacity with anticipated demands in the face of the very significant uncertainty that arises out of clinical trials and competitor activity. Efficient capacity utilisation plans and robust infrastructure investment decisions will be important as regulatory pressures increase and margins are eroded. The ability to locate nodes of the supply chain in tax havens and optimise trading and transfer price structures results in interesting degrees of freedom in the supply chain design problem. Prior even to capacity planning comes the problem of pipeline and testing planning, where the selection of......

Words: 10158 - Pages: 41


...Ethics Awareness Inventory Octavio Landeros PSYCH/545 - Survey of Professional Psychology August 12, 2013 Instructor: Mary Mc Greevy Abstract The purpose of the summary is to elucidate the importance of a personal ethical perspective and to scrutinize the affiliation between professional and personal ethics in psychology. The summary will analyze by taking into account the results of the Ethics Awareness Inventory (EAI). Ethics Awareness Inventory In today’s society, there is a fine and invisible line among individuals and professionals: ethics. The meaning has become so multifaceted that people’s views about ethics have become unstable and broad. Ethics relate to moral principles to guide individuals and to teach them how to conduct themselves in society by differentiating between rightness and wrongness. The standard of right and wrong defines the aspect of ethics. Ethical dilemmas will arise and will bring a tangle of questions to the professional. The professional will wrestle with questions that will be hard to admit to themselves and others (Pope & Vasquez, 2011). It is human nature to make rushed decisions and mistakes makes humans question their professional and personal ethics. Ethics will help the professional answer those tangled questions. An ethical awareness will let the professional weigh the choices that will affect the lives of colleagues, the public, and the clients. An ethical awareness will free the professional from the restraining......

Words: 1102 - Pages: 5


...Stock control and inventory Stock control is used to show how much stock you have at a point in time, and how you keep track of it. It applies to every item you use to produce from raw materials to finished goods and whether it is a product or service. It covers stock at each stage of the production process, from purchase and delivery to using and re-ordering the stock. Having the right amount of stock is important as it ensures that capital is not tied up unnecessarily, and protects production if problems arise with the supply chain. Types of stock Everything you use to make your products, provide your services and to run your business is part of your stock. Types of stock: • raw materials and components (used in production) • work in progress (unfinished goods in production) • finished goods (ready for sale) • consumables (fuel and stationery etc) How much stock should you keep? The size and nature f your business decided how much stock to keep, and the type of stock involved. If you are short of space, you may be able to buy stock in bulk and then pay a fee to your supplier to store it, calling it off as and when needed. Keeping little or no stock and negotiating with suppliers to deliver stock as you need it Advantages: • Lower storage costs • You can keep up to date and develop new products without wasting stock • Efficient and flexible - you only have what you need, when you need it Disadvantages: ...

Words: 1451 - Pages: 6


...Iowa State University Digital Repository @ Iowa State University Graduate Theses and Dissertations Graduate College 2008 Inventory management in a manufacturing/ remanufacturing hybrid system with condition monitoring Bhavana Padakala Iowa State University, Follow this and additional works at: Part of the Industrial Engineering Commons Recommended Citation Padakala, Bhavana, "Inventory management in a manufacturing/remanufacturing hybrid system with condition monitoring" (2008). Graduate Theses and Dissertations. Paper 11925. This Thesis is brought to you for free and open access by the Graduate College at Digital Repository @ Iowa State University. It has been accepted for inclusion in Graduate Theses and Dissertations by an authorized administrator of Digital Repository @ Iowa State University. For more information, please contact Inventory management in a manufacturing/remanufacturing hybrid system with condition monitoring by Bhavana Padakala A thesis submitted to the graduate faculty in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Major: Industrial Engineering Program of Study Committee: Sarah M. Ryan, Major Professor Jo Min Danny J. Johnson Iowa State University Ames, Iowa 2008 Copyright © Bhavana Padakala, 2008. All rights reserved. ii TABLE OF CONTENTS LIST OF FIGURES ........................................................

Words: 17671 - Pages: 71

Inventory, it needs to keep track of the products in the firm. Keeping an accurate inventory is critical to lowering costs and providing a more streamlined operation. Traditional inventory management has largely been phased out by technologically advanced. They rely on hand-counted or electronically reported stock levels, manual order placement and storage. The SJF Auto Parts needs a computerized inventory system because of transactions they covered. In the helps of the system it makes everything from inputting information to taking inventory easier and leads for their success and growth. The owner can monitor the business at the website so that the owner can monitor at lest they can’t go to the store because of some agendas. The system's availability of sufficient products for the customers whereas function deals with monitoring the stocks of the products. Checking of stocks availability, generating and providing the reports on time, securing of important data and information.. .Primary reason to hold inventory is to offset uncertainties in demand . if demand increase and raw materials stocks run out, the production line shuts down until more materials is delivered. Likewise, a shortage of work in process means the product cannot be finish. Finally, if customers order outstrip finish good supply, the resulting stock outs could lead to lost customers. SJF auto parts suffer in the manual inventory system . Counting the amounts of Billions of auto parts to the smallest and to......

Words: 337 - Pages: 2


...Financial reporting developments A comprehensive guide Consolidated and other financial statements Revised November 2013 Noncontrolling interests, combined financial statements, parent company financial statements and consolidating financial statements To our clients and other friends This Financial reporting developments (FRD) publication is primarily designed to help you understand financial reporting issues related to the accounting for noncontrolling interests. This publication also includes interpretive guidance on consolidation procedure and on the presentation of combined, parentonly, and consolidating financial statements. The publication reflects our current understanding of the relevant guidance in these areas, based on our experience with financial statement preparers and related discussions with the FASB and SEC staffs. The accounting for noncontrolling interests is based on the economic entity concept of consolidated financial statements. Under the economic entity concept, all residual economic interest holders in an entity have an equity interest in the consolidated entity, even if the residual interest is relative to only a portion of the entity (that is, a residual interest in a subsidiary). Therefore, a noncontrolling interest is required to be displayed in the consolidated statement of financial position as a separate component of equity. Likewise, the consolidated net income or loss and comprehensive income or loss attributable to both......

Words: 57119 - Pages: 229


...Abstract: An discussion of Denny’s Corporation’s accounting policies and financial statements as of December 26, 2012 as compared to Red Robin Gourmet Burgers Incorporated’s accounting policies Abstract: An discussion of Denny’s Corporation’s accounting policies and financial statements as of December 26, 2012 as compared to Red Robin Gourmet Burgers Incorporated’s accounting policies Accounting Policies Project Part 1 Accounting Policies Project Part 1 Table of Contents Report 1 Part 1: Discussion of the Balance Sheet Part 2: Discussion of the Consolidated Statements of Income Part 3: Discussion of the Statement of Cash Flows Part 4: Discussion of the Auditor’s Opinion Part 5: Discussion of Revenue Recognition Part 6: Discussion of Accounts Receivable Part 7: Discussion of Inventory and Cost of Goods Sold Part 8: Discussion of Property, Plant and Equipment Report 2 Part 1: Discussion of Intangible Assets Part 2: Discussion of Current Liabilities Part 3: Discussion of Long-Term Debt Part 4: Discussion of Leases Part 5: Discussion of Stockholder’s Equity Part 6: Discussion of Statement of Cash Flows Part 7: Overall Evaluation Denny’s Corporation Financial Statements Notes MD&A Red Robin Gourmet Burgers Inc. Financial Statements Notes MD&A Part 1: Discussion of the Balance Sheet This section will briefly overview and list the major components of Denny’s Corporation and Red Robin Gourmet Burgers, Inc.’s......

Words: 5004 - Pages: 21


...Company A having larger inventory than Company B. Company A (with larger inventory) will have the following advantages: * Lower ordering costs: For the raw materials they will be able to spread the fixed ordering costs over a larger amount of goods. * Quantity discounts: For the raw materials they would be better positioned to request quantity discounts because they would be ordering in bulk amounts. * Lower transportation costs: For the finished goods they will be able to reduce transportation costs because they can deliver more of the goods in one shipment versus having to deliver individual items. * Lower setup costs: For the work-in-process inventory they will be able to reduce setup costs that are incurred for switching between products. * Higher capacity utilization: With large inventory, they will be able to utilize their installed capacity to the maximum possible level. * Higher customer service: Provide better customer service by avoiding stock outs and backorders on finished goods. By avoiding these two scenarios they will be able to ensure on-time delivery. * Buffer: An excess inventory of finished goods can provide a buffer for increases in customer demand. The business is taking a risk by building and storing finished products in anticipation of customer demand, but it can reduce the lead time and improve customer satisfaction. Company B (with smaller inventory) will have the following advantages (has smaller inventory): * Less......

Words: 1955 - Pages: 8

Accounting for Inventory Under Ifrs and Us Gaap

... Accounting for inventory under IFRS and U.S. GAAP ABSTRACT U.S. General Accepted Accounting Standards (U.S. GAAP) and International Financial Reported Standards (IFRS) both give guidance for inventory valuation. This study will give several examples, compare cost flow assumptions and inventory valuation under U.S. GAAP and IFRS, and indicate the possible influences to reported companies and financial information users. INTRODUCTION The U.S. Securities and Exchange Commission (SEC) continues to move forward in its proposed plans to replace U.S. GAAP for U.S. public companies with IFRS. Inventory valuation is important, because inventory is a crucial element not only in the computation of profit, but also in the valuation of assets for balance sheet purposes. Unfortunately, inventory values sometimes are manipulated by management in order to create a more favorable impression. In the following sections, I introduced several differences between U.S. GAAP and IFRS. I also analysis the possible reasons of information manipulation and influence. In section one and section two respectively I will talk about differences in cost flow assumptions and inventory valuation under both methods. I. COST FLOW ASSUMPTIONS Companies typically purchase merchandise at several different prices. Ending inventory equals the quantity on hand multiply the unit acquisition price. If a company use historical cost to determine the cost of inventory and it purchases inventory at different unit......

Words: 4341 - Pages: 18

The Background and Role of Inventory in Accounting

...Introduction International accounting standard No.2 (IAS2) "Inventory" gives the rules which should be followed during the recording and presentation of inventory. Inventory refers to goods which are held by a firm for sale, are in the production process or are materials which will be consumed in the production process or in giving out of services. This standard does not apply to financial instruments and it gives out a guideline on how to measure an asset which is categorized as an inventory, which concept constitute of the cost and at what time an expense occurs and the information that should be disclosed while preparing the financial statements (International Accounting Standards Board, 2008, p.977). History In the year 1974 during the draft of standard, the name was changed to "inventories" from "valuation and presentation of Inventories in the Context of the Historical Cost System" the first draft was affected on 1st of January in the year 1995 and this was 21 years after the first draft exposure. On 18th of December 2003, the standard was revised and took effect as from the strart of January 2005. In the year 2003, there was a revised IAS 2 whereby different cost formulas for inventories were incorporated into the standard. These were superseded from SIC 1 on consistency. On December 1997, SIC 1 was issued and was effective as from 1st January 1999. sic 1 required that that the same cost formula was to be used for inventories with the same characteristics under IAS...

Words: 1010 - Pages: 5


...high inventory levels - Improve production scheduling - Use correct performance metrics Exercise 4: Sessions Six and Seven Part 2: Information Requirements Determination (IRD) Complete Part 2 in Session 7 Instructions 1) Select a structured interview technique to determine supply chain information requirements at your organization. You may choose ONE of the following: a) Business systems planning (BSP) Focus on information needed to support cycle time reduction. 2) Follow the instructions below for the interview technique you selected: a) Business Systems Planning (BSP) i) Identify and describe one specific supply chain problem to be solved or decision to be made at your organization. One major supply chain problem is the overall high levels of inventory. Methods to reduce; i)Re-engineer. Major reductions - re-engineering of the order-to-delivery cycle to find ways to do it faster, better, cheaper. ii) Improve supply chain management. By streamlining the entire supply chain, a company can reduce inventory, improve time to market, compress cycle times, free up more cash, decrease costs and improve profitability. iii) Revise order cycles/quantities: Smaller and more frequent order quantities translate into fewer inventories iv) Centralize inventory: distributed warehouses require more inventory than centralized facilities. The key driver of the increased inventory......

Words: 479 - Pages: 2


...General Services Office Inventory System Chapter 1 THE PROBLEM AND ITS BACKGROUND Introduction Computer systems and applications are basic tools used for companies and even small businesses nowadays. In order to make the tasks easier and avoid time consuming, computer technologies are now a big help. It provides tools for the employees in every office for easy tracks of daily activities related to their jobs. The computer systems and applications we create plays a vital role to make the daily works made easier, less time and efforts, more productive and accurate especially in an establishments like school offices. Computerization is now the basic necessity for every establishment, yet there are also still using manual methods which make them outdated. The General Services Office (GSO) of Divine Word College of San Jose is one of the offices which used manual methods for keeping records and transactions which make them consume lot of time and effort to find and manage all the information they needed. The data and transactions may not 100% reliable because it is handwritten and or because of human error lack of detection. The General Services Office Inventory and Scheduling system is designed to give accurate data about the first in and first out items within the office and provide accurate information on day to day schedules and reservations of specific rooms to avoid errors and conflicts to a certain schedules. The personnel in charge for the system have a......

Words: 1865 - Pages: 8

Accounting for Inventories

...ACCOUNTING FOR INVENTORIES For Merchandising Firms Inventories are valued at cost, net of discounts, and including transportation and other costs (ie: import duties) to prepare the goods for sale. Buying Inventory: * DR Merchandise Inventory, CR Cash/Accounts Payable Selling Inventory: * DR A/R or Cash, CR Revenues * DR Cost of Goods Sold Expense, CR Merchandise Inventory Lower of Cost or Market (LOCOM): * Inventories can sometimes decrease in value while stored due to market conditions, obsolescence or damage * Accounting standards require firms to subject their inventories to an impairment test at fiscal year-end and, where the FMV < Purchase Price, write down the value of their inventory * FMV in IRFS = “net realizable value”; in US GAAP = “replacement cost” * For example, if you purchased 200 ropes at $40 but they are only worth $30 at year end: * DR Impairment expense $2000, CR Accumulated Inventory Impairment $2,000 * The reason we don’t subtract impairment directly from merchandise inventory is because the loss is still unrealized and there is a possibility of recovery in the future. * For example, say market conditions improved and now ropes were valued at $50 * DR Accumulated Inventory Impairment $2,000, CR Impairment Expense $2,000 * Here it does not matter how much greater the value is, we do not account for increases in value Methods of Inventory Valuation ...

Words: 469 - Pages: 2


...CHAPTER I INTRODUCTION Background of the Study Inventory is basically the total amount of goods and materials held in stock by a factory, store and other business. An inventory system is a process whereby a business keeps track of the goods and material it has available. In its simplest sense it can be done manually by a count at the end of each day. In this way it is possible to keep a record of the goods coming in to the business and goods being sold. (Chapter 1 Inventory System, 2011) Since manual inventory consumes a lot of time and is prone to errors, it would be helpful to build a system that will computerize the transactions from acquisition of the product description to updating the inventory database. The computerized inventory system will improve employees’ work efficiency by computerizing routinely and time consuming tasks such as the time spent in taking down product information. As a result, the time can be used in more productive activities. The accuracy of the current system will also be improved, since the computerized inventory system would eliminate the need of constantly encoding lengthy details of products by having an inventory database. Monitoring encompasses the tracking of individual processes, so that information on their state can be easily seen, and statistics on the performance of one or more process can be provided. The Baguio City Hall Monitoring and Inventory System for Supplies and Properties is a proposed system to......

Words: 1885 - Pages: 8


...Student Name: | Topic Reflected on: Inventory | | Date: 3/22/2015 | | Discuss important issues an accountant must consider when accounting for inventory. Make sure you explain why it is an issue.An issue an accountant must consider is whether the goods that are in transit belong to the company in inventory or the customer. This issue is related to ownership of the goods to decide whether a sale has occurred or if it remains in inventory at the end of the period. Accountants must also consider the issue of valuing of inventory. This is an issue because records must be kept consistent when recording inventory so that it is fairly valued in accordance with the accounting method chosen such as, FIFO, LIFO, or weighted average method to determine the value of inventory. The inventory method chosen can results in different amounts for the cost of goods sold. Inventory detail can be an issue as it must be accurate related to FIFO and LIFO so when selling units the correct per price point is used for each method. Shrinkage costs can be an issue if the difference in current inventory costs are drastically different from the physical count. A drastic difference means there is high human error or theft of inventory. Determining which method will affect the income of a company and the taxes a company has to pay can be an issue depending on the company. If a company is trying to pay lower income taxes, the method chosen is directly related to the economic environment. ......

Words: 1454 - Pages: 6

Internet Impacts on Global Business | The Lucky One - Für immer der Deine (2012) | Dorothy Malone