Unit Test Review: Unit 5: Inventory Procedures

Resources:  

• Text, chapter 6 (inventory)

• Lesson 26: The periodic inventory system.

• Lesson 27: The perpetual inventory system.

• Lesson 28: Methods of inventory valuation, including average cost; first-in, first-out; last-in, first-out; and specific identification.
  

• Lesson 29: The effects of each method of inventory valuation on financial statements.
  

• Lesson 30: The effects of an error in valuing inventory on financial statements.

Practice:

• Inventory Mastery Quiz (Sign in to Blackboard before clicking this link.)

Requirements:

• Define the following terms:
  • Perpetual Inventory
  • Periodic Inventory
  • Purchases
  • Cost of Goods Sold (under both periodic and perpetual systems)
  • Merchandise (under both periodic and perpetual systems)
  • Sales
  • Freight-In (under both periodic and perpetual systems)
  • Free-on-Board Shipping Point
  • Free-on-Board Destination
     
• explain and account for freight costs under both the periodic and perpetual systems;

   

• explain and differentiate between four specific methods of valuing inventory under the periodic inventory system, including:
  • actual physical flow:
    • specific identification
  • assumed cost flow:
    • first-in, first out (FIFO)
    • last-in, first out (LIFO)
    • average cost

     

• calculate ending inventory and cost of goods sold utilizing all of the above inventory valuation methods;

• analyze the effects that the various methods of valuing inventory have on the financial statements.
  • actual physical flow:
    • specific identification
  • assumed cost flow:
    • first-in, first out (FIFO)
    • last-in, first out (LIFO)
    • average cost

     

• analyze the effects that various inventory errors will have on the financial statements. Specifically, Income Statement effects and Balance Sheet effects;