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Inventories are asset items held for sale in the ordinary course of business or goods that will be used or consumed in the production of goods to be sold. The description and measurement of inventory require careful attention because the investment in inventories is frequently the largest current asset of merchandising (retail) and manufacturing businesses.
Balance Sheets
Service Company Century 21 Real Estate Balance Sheet Year Ended December 31, 20xx Current assets: Cash Short-term investments Accounts receivable, net Prepaid expenses Merchandising Company General Motors Corporation Balance Sheet Year Ended December 31, 20xx Current assets: Cash Short-term investments Accounts receivable, net Inventory Prepaid expenses
$X X X X
$X X X 11 X
Inventory costing methods: Specific identification First-in ,First-out Last-in, First-out Weighted average cost
Stewart Distributing Company sells a single product for $2 per unit and uses a periodic inventory system. The following data are available for the year:
Number of Transaction Units Beginning inventory 500 Purchase 350 Sale (550) Sal (200) Purchase 400 Sale (300)
1.30
520.00
Required 1. Compute cost of goods sold assuming the use of the weighted average costing method. 2. Compute the dollar amount of ending inventory assuming the FIFO costing Method.
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Fixes assets
Fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business.
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Depreciation
Depreciation is an example of the matching principle in action. It represents the diminution in value of a fixed asset over a period of time.
Physical depreciation Functional depreciation
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Initial Cost
Residual Value
Depreciable Cost
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Methods of Depreciation
1. The straight line methods
2. Accelerated methods: written down-value method
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Straight-line method
ABC Ltd. Bought a machine at a cost of 80,000. The depreciation is to be charged at a 20% per annum on cost.
Depreciation per annum = 80,000 x 20% = 16,000 per year
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