CHAPTER IV
inventory types
- Periodic inventory or physical
- continuous or perpetual inventory
1. Periodic inventory or physical.
In the periodic inventory system, the business does not maintain a continuous record of inventory, rather, the end of the period, the business makes a physical count of inventory available and applied unit costs to determine the cost of inventory final.
The periodic table is generally used to account for inventory items that have a low unit cost.
This inventory is generally used by small and medium . registration transactions made himself, along with taking inventory and its corresponding physical valuation, permit the development of important financial statement called the profit and loss.
The cost of goods sold and inventory balances are calculated only at the end of the accounting period, when taking a physical inventory.
-Opening Inventory + Purchases = Ending Inventory Cost of Selling Art
1.1 Method periodic inventory.
The merchandise that comes in is recorded in the purchase account in order to make a single adjusting entry to accrue the cost of sale in a separate account. O There are basically two methods to determine the inventory may, at any given time, replace the physical count method:
1.1.1 gross profit method.
This method is supported to experience the company has had in the previous period, in relation to the profit margin. All is known that the selling price of an item is made by a party representing the cost of purchase or manufacture of that article and elsewhere is the gross profit that the employer wishes to make is:
Sales Price = cost + profit sales.
From the relationship suggested:
cost of sales = selling price - utility.
If in addition to, the accounting records enables us to determine the cost of goods available, we can determine the cost of merchandise inventory that exists for that date as well:
Merchandise inventory = goods available - cost of sales.
can be observed that to obtain the amount of inventory by this method, the action is confined to determine the goods available and the cost of sale. The gross profit method can be used only to determine non-ending work, but also to calculate the balance of any accounts related to sales and cost of sales.
1.1.2. Method of retail sales.
This other method to estimate the inventory at any time and is used basically in those companies where it is sold retail or retail goods, such as department stores. This industry need, usually to prepare financial statements in interim dates for which closure is necessary to have the amount of inventory for those dates. It is obvious to take monthly physical inventory in this type of business is an arduous task that justifies use estimation methods, because if the calculation process is carried out carefully and systematically, the cost of certain inventory and closer, reasonably, the result would be obtained by physical inventory.
To apply this method requires estimates of inventories that are given a series of conditions. For clarity in explanation, we will build on the case developed in the illustration.
Price: 30600.00
initial inventory ..................................... .......................... 43 Net purchases 98200.00 100.00
........................................
900.00 .......................... 140 .............. 128,800.00 Merchandise available
...................................... 140 900.00 Less: sales (at cost sale) ................................................ ... Current inventory
139 000.00 (a ).................................. selling price 45 ............... Cost-
000.00 - sale price: 128 800.00 x 100 = 70% ... 184 000, 00
Current inventory at cost: 45 000.00 x 70 ........ ......... 3150 000.00
2. Continuous or Perpetual Inventory
The Perpetual Inventory system, the business maintains a continuous record for each inventory item. Records show so the available inventory at all times. Perpetual records are useful for preparing monthly financial statements, quarterly or provisionally. The business can determine the cost of ending inventory and cost of goods sold directly from their accounts without having to count the inventory.
The perpetual system offers a high degree of control, because the inventory records are always updated today with this method, managers can make better decisions about the quantities to be purchased, the price to pay for the inventory, setting customer pricing and terms of sale to offer. The knowledge of the available amount helps protect inventory.
The derivation of the balance of each account includes inventory:
Beginning Balance + Additions (Shopping)
- Decreases Cost of goods sold = Balance Final
The balance of the inventory under the perpetual system should result in the cost of inventory available at any time.
perpetual inventory records provide information for the following decisions:
Most furniture stores, save the merchandise in their stores, so employees can not visually inspect the merchandise available and respond at that moment . The perpetual system will prompt the timely availability of such goods.
perpetual records alert the business to reorganize the inventory when it is shown below.
If companies prepare financial statements monthly, perpetual inventory records are the final inventory exists, no need for a physical count at this time, however, requires a physical count once a year to verify the accuracy of records . In this type of inventory records are kept continuous, daily flow and inventory and cost of goods sold.
The perpetual system offers a high degree of control, because the inventory records are always updated today with this method, managers can make better decisions about the quantities to be purchased, the price to pay for the inventory, setting customer pricing and terms of sale to offer. The knowledge of the available amount helps protect inventory.
The derivation of the balance of each account includes inventory:
Beginning Balance + Additions (Shopping)
- Decreases Cost of goods sold = Balance Final
The balance of the inventory under the perpetual system should result in the cost of inventory available at any time.
perpetual inventory records provide information for the following decisions:
Most furniture stores, save the merchandise in their stores, so employees can not visually inspect the merchandise available and respond at that moment . The perpetual system will prompt the timely availability of such goods.
perpetual records alert the business to reorganize the inventory when it is shown below.
If companies prepare financial statements monthly, perpetual inventory records are the final inventory exists, no need for a physical count at this time, however, requires a physical count once a year to verify the accuracy of records . In this type of inventory records are kept continuous, daily flow and inventory and cost of goods sold.
2.1 Methods perpetual inventory
methods always be valued at cost (purchase price or production), which should include: the value of the product and transportation costs (customs, insurance, etc.) There are several methods of valuation of our inventory: FIFO, LIFO, STANDARD, SIMPLE AND WEIGHTED.
2.1.1 FIFO Method .- Fist In First Out (First in, first out)
This method allocates the unit that leaves the value of the first that came. The existence coming out is supposed to be the oldest. Let's see an example:
100 items enter 300.
"The day 01/02/1998 200 items enter 200.
On 02/01/1998 -out 80 items. (Calculate the starting price)
On 03/01/1998 -out 40 items. (Calculate the starting price)
For the first exit, the 80 items out at the price of the first post: 300.
For the second exit, we still have 20 articles of the first inning to get to 300
then exhausted items in the first inning, the next 20 will come at the price of the second input, ie, 200.
is, the 40 articles of the second exit out:
20 to 300.
20 to 200.
We still have in stock 180 articles of the second input to output 200 for the following items (if any).
2.1.2 .- Method LIFO Last In First Out (last in, first out)
This method maps to the unit that leaves the value of the last one entered. The existence coming out is supposed to be the newest. Let's see an example with the same moves as the previous example:
-enter the day 01/01/1998 100 items 300. On 02/01/1998
-hold 200 items to 200. On 02/01/1998
-out 80 items. Will go to 200. (Price of the last entry) On 03/01/1998
-out 40 items. Will go to 200. (Prices in the last entry has not yet been exhausted and we still have 80 items to get to 200. Once exhausted, the next exit would be at 300).
2.1.3. Standard method.
-enter the day 01/01/1998 100 items 300. On 02/01/1998
-hold 200 items to 200. On 02/01/1998
-out 80 items. Will go to 200. (Price of the last entry) On 03/01/1998
-out 40 items. Will go to 200. (Prices in the last entry has not yet been exhausted and we still have 80 items to get to 200. Once exhausted, the next exit would be at 300).
2.1.3. Standard method.
This method values \u200b\u200bthe units that enter or leave at a certain price.
rating by the FIFO method .- This method is to assign the average value of the units coming out. There are two types of averages: simple and weighted . Average
simple: average is applied when the units have been bought out at various prices. Consider the example:
-purchase of 500 units to 200
-Purchase of 400 units to 230
-sales of 400 units to 200
-Sale of 250 units to 215
At the first exit, and leave only 400 units and they are all within the first entry, does not apply any type of average to calculate the starting price. But at the second exit, and exit 100 of the first inning and 150 of the second, what you do is calculate the average price. This average is found by adding the unit prices of the inputs are affected, and this sum is divided by the number of prices have been affected. In this case would be:
(200 + 230) / 2 = 215
Weighted average: applies to the entire store. It is perhaps the best method for stock inventory as it takes into account the quantities and input prices to calculate the output value. This method has some complexity if you want to do by hand. Consider the steps to follow:
-entry units are multiplied by their value
-multiply units already exist in the store for a price-weighted average
results are summed
"He divided the existing units plus the units just entering
Let's see how we got to set the PMP for each outgoing
" When we had no input, we made an entry of 300 units in stock 200. The value of the stock becomes 60,000.
"In the second movement, hold 200 units to 220, or an entry of 44,000. To calculate the PMP do the following:
Before: 300 x 200 = 60,000
Now: 200 x 220 = 44 000 -------
104,000 units in 500 pts
The PMP is 104,000 / 500 = 208 / unit
"In the third movement out 100 units with a value indicated by PMP calculated. There are fewer units in the store, but the PMP is maintained.
-enter the fourth movement in 1000 to 215 units. The calculation is:
Before: 300 x 200 = 60,000
Now: 200 x 220 = 44 000 -------
104,000 in 500 units
The PMP is 298,000 / 1400 = 213 / unit must
Stocks measured at least once during the accounting period. Once the stock is valued should make the book entry. Suppose that on 01.01.1998 we have started the activity of the company and its accounting. Arriving at 31 December we have 100,000 in stock. As we started we had no, we would realize the following Seat:
________________________ 31 - 12 to 98 stocks to ____________________________
100,000 100.000Por Variation in physical count of stock.
rating by the FIFO method .- This method is to assign the average value of the units coming out. There are two types of averages: simple and weighted . Average
simple: average is applied when the units have been bought out at various prices. Consider the example:
-purchase of 500 units to 200
-Purchase of 400 units to 230
-sales of 400 units to 200
-Sale of 250 units to 215
At the first exit, and leave only 400 units and they are all within the first entry, does not apply any type of average to calculate the starting price. But at the second exit, and exit 100 of the first inning and 150 of the second, what you do is calculate the average price. This average is found by adding the unit prices of the inputs are affected, and this sum is divided by the number of prices have been affected. In this case would be:
(200 + 230) / 2 = 215
Weighted average: applies to the entire store. It is perhaps the best method for stock inventory as it takes into account the quantities and input prices to calculate the output value. This method has some complexity if you want to do by hand. Consider the steps to follow:
-entry units are multiplied by their value
-multiply units already exist in the store for a price-weighted average
results are summed
"He divided the existing units plus the units just entering
Let's see how we got to set the PMP for each outgoing
" When we had no input, we made an entry of 300 units in stock 200. The value of the stock becomes 60,000.
"In the second movement, hold 200 units to 220, or an entry of 44,000. To calculate the PMP do the following:
Before: 300 x 200 = 60,000
Now: 200 x 220 = 44 000 -------
104,000 units in 500 pts
The PMP is 104,000 / 500 = 208 / unit
"In the third movement out 100 units with a value indicated by PMP calculated. There are fewer units in the store, but the PMP is maintained.
-enter the fourth movement in 1000 to 215 units. The calculation is:
Before: 300 x 200 = 60,000
Now: 200 x 220 = 44 000 -------
104,000 in 500 units
The PMP is 298,000 / 1400 = 213 / unit must
Stocks measured at least once during the accounting period. Once the stock is valued should make the book entry. Suppose that on 01.01.1998 we have started the activity of the company and its accounting. Arriving at 31 December we have 100,000 in stock. As we started we had no, we would realize the following Seat:
________________________ 31 - 12 to 98 stocks to ____________________________
100,000 100.000Por Variation in physical count of stock.
EXAMPLE
perpetual or continuous Inventory:
A company that trades in TVs, which purchase the higher S /. 70,000 each and retails for 80,000 Bs his seat would be:
Beginning inventory - 4 units ........................... .............. S /. Buy
280,000 for the period - 10 Units ............................ S /.
700,000 sold in the period - 9 units: Price .................................... ........... S /.
720,000 Cost of units sold ................. ............. S /. Final Inventory
630,000 - 5 units ....... ........................... S /.
350,000 Initial Inventory: 280,000
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