4 inventory

Definition of Inventories
Inventories or stocks (存货） are current assets.
Inventory means goods or other properties： held for sale in the ordinary course of operations (goods商品); for further production of sellable goods (raw materials原材料); or to be used up in the process of producing goods or providing services (consumables耗材).
Salesmen’s compensation $10/each Transporting fee $5/each Delivering 10 computers to customers
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Place of sale
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Example
100 computers purchased in Singapore ($100/each) Total Shipping fee $300 Insurance fee $20 Custom duties in Shanghai $10/each) Total Transporting fee $100 Repacking in Jinhua $20/each Promotion Expenditure $100
25000
Hong Kong Store 5 3 Balance T Q
100
Reorder amount
Date Q
Jan 1 100
100
Q P P
250
Items in P
250
T
0 25000
Jan 2
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40
250
10000
60
250
15000
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Goods In Transit
A sale should be recorded when title to the merchandise passes to the buyer.
F.O.B. shipping point title passes to buyer at the point of shipment.
consumables
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An example for manufacturing inventories
consumables
consumables
wood
Half-finished furniture (without painting)
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Periodic Inventory System
No effort is made to keep up-to-date records of either inventory or cost of goods sold.
finished furniture
In manufacturing business, the input (raw material) is quite different from the output (finished goods).
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Summary of costs of inventories
Cost
of purchase Cost of transporting goods to a location for sale or conversation Cost of import duties or other taxes incurred prior to sale Cost of conversion or repacking to make goods ready for sale.
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Perpetual Inventory Systems
The inventory account is continuously updated to reflect items on hand.
Purchase inventory in ready-to-sell condition.
Manufacture inventory have a longer and more complex operating cycle.
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Merchandising Company
Taking a Physical Inventory (实地盘存)
In order to ensure the accuracy of their perpetual records, most businesses take a complete physical count of the merchandise on hand at least once a year. When the physical count identifies inventory shrinkage losses, such as theft, spoilage, or breakage, the company needs to increase cost and decrease inventory accordingly.

Average Cost First In First Out (FIFO) Last In First Out (LIFO)
Lower
of Cost or Market Financial Analysis
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Year End
F.O.B. destination point title passes to buyer at the point of destination.
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Merchandising Companies and Manufacturing Companies
Manufacturing Company
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Manufacturing inventories & Merchandising inventories
Manufacturing inventories Raw material Work in process/half finished goods Finished goods Non-manufacturing inventories Goods purchased for resale consumables
INVENTORIES
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Outline
Introduction
to inventory Costs of inventories Types of inventory system Cost of goods sold Inventory valuation methods
Assets Liability = Equity
Cash Debtors Inventory Creditor Equity
Sept 5 Purchased 100 laser lights for $30 per unit 3000 3000 Total 3000 3000 Sept 10 Sold 10 laser lights for $50 per unit on account 500 -300 Total 500 2700 3000
Profit Loss
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500 -300 200
Perpetual Inventory Systems
Stock card
Item Number Item Name Reorder point 1 Wood Bars 12 Location Shelf Bin Number Items out T
3000
3000
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Perpetual Inventory Systems
On September 10, Worley Co. sold 10 laser lights for $50 per unit on account to ABC Radios.