Unit 6: Accounting for Inventory – Measuring and Reporting
Many businesses have to buy merchandise for their end-users to conduct their daily activities. There are a number of ways to account for the purchasing and integration of this merchandise within a business, and the decision on how a business will account for this rests on a number of factors. This unit introduces the inventory valuation concepts FIFO (First in First Out), LIFO (Last in First Out), and the weighted average. Choosing an inventory valuation method is a major decision a merchandising business entity will have to make before the merchandise is purchased. It also dictates the valuation of the merchandise on hand within the business.
Completing this unit should take you approximately 7 hours.
Upon successful completion of this unit, you will be able to:
- identify and analyze accounting transactions of a merchandising company; and
- define and solve for specific business situations involving various inventory methods.
6.1: Introduction to Inventories and the Classified Income Statement
Read Chapter 6 and pay attention to the comparison of the two income statements. This chapter reviews the difference in reporting and financial presentation of information for service and merchandising operations and compares recording inventories for two separate types of businesses.
Read this section, which focuses on the nature of inventory, categories of goods included in inventory, components of inventory cost, and the flow of inventory costs.
Read this section, which focuses on internal controls, perpetual verses periodic counting, conducting a physical inventory, and the impact of measurement error.
6.2: Measuring and Reporting Inventories
Read chapter 8. For many organizations, inventory represents a large portion of their assets, so it is important to be familiar with measurement and reporting techniques.
This video addresses shipping costs and when inventory should be recorded as an asset or not during shipping.
Read this section, which focuses on the four inventory costing methods and the impact each has on the financial statements.
Read this section, which focuses on the lower of cost or market and methods in retail inventory.
Read this section, which focuses on efficiency metrics and the impact of inventory method on financial statement analysis.
Read this section, which focuses on reporting inventories and inventory turnover ratio.
- View Receive a grade
Attempt this practice quiz, which covers inventory reporting, valuation, and costing.
Unit 6 Assessment
- Receive a grade
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.
