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Ch 6: Merchandising Operations and Inventory in Accounting

About This Chapter

Watch video lessons and find out about merchandising operations and inventory. Use the brief quizzes that accompany each lesson to track your progress.

Merchandising Operations and Inventory in Accounting - Chapter Summary and Learning Objectives

This chapter examines merchandising companies and the items that are included in a merchandise inventory. Skilled instructors will teach you about the different types of inventory systems, inventory valuation and methods for taking inventory. You'll know about the following topics when you're finished with this chapter:

  • Inventory cost
  • Accounting for sales
  • FIFO and LIFO methods
  • Effects of inventory errors
  • Net realizable value of inventory
  • Lower of cost or market

Video Objective
Merchandising Company: Definition, Activities & Income Components Defines merchandising company and explains merchandising activities. Identifies income components for a merchandising company and discusses reporting income, operating cycles and inventory systems.
Items that Make Up Merchandise Inventory Defines inventory and introduces items that are part of one, including goods in transit, goods in consignment and goods damaged.
Inventory Cost: Definition, Methods & Types Examines carrying and ordering costs and shortage costs. Defines ending inventory and discusses cost of goods sold and ownership of inventory.
Accounting for Inventory Purchases Teaches you how to compute and record the cost of merchandise purchases. Introduces trade discounts, purchase discounts and returns, allowances, transportation costs and ownership transfer.
Perpetual and Periodic Inventory Systems Highlights key aspects of these two types of inventory systems.
Recording Purchases Using the Perpetual System Demonstrates how to use the perpetual system to record transactions for merchandise purchases. Provides an analysis of this method.
Accounting for Inventory Sales Illustrates how sales, sales discounts, returns and allowances are accounted for in merchandising companies. Details how to account for cost of goods sold.
Recording Sales Using the Perpetual System Shows you how to record merchandise sales using the perpetual system.
Reconciling the Bank Account After Purchases or Sales Shows you how to reconcile the bank account after a purchase or sale.
Inventory Counting: Process & Methods Describes the process of taking a physical count of inventory. Examines how income is affected by an error in ending inventory.
Inventory Valuation Methods: Specific Identification, FIFO, LIFO & Weighted Average Demonstrates how to compute inventory in a perpetual system using LIFO, FIFO, weighted average and specific identification.
The Importance of Evaluating Investment Management Explains why it's critical to evaluate inventory levels. Presents the calculation for determining how well operating cash flow is being managed.
The Effects of Financial Statements on Costing Methods Assesses how inventory methods affect financial and tax reporting. Details some complications of the perpetual method associated with LIFO and average cost. Examines how to report inventory at amounts below cost.
The Effects of Inventory Errors Analyzes how inventory errors can impact financial statements. Looks at the effects on both current and future statements.
Net Realizable Value of Inventory: Definition & Method Explores what it means to value inventory at the net realizable value.
The Lower of Cost or Market of Inventory: Definition & Method Defines the lower of cost or market concept and describes what it means to value inventory using this concept. Demonstrates how to compute the lower of cost or market of inventory.

16 Lessons in Chapter 6: Merchandising Operations and Inventory in Accounting
Merchandising Company: Definition, Activities & Income Components

1. Merchandising Company: Definition, Activities & Income Components

Do you know what a merchandising company is? If you said it's a store, you are right. It is a store, but it is also so much more. In this lesson, we are going to discuss some of the major components of a merchandising company.

Items that Make Up Merchandise Inventory

2. Items that Make Up Merchandise Inventory

In order to operate, merchandising companies must carry inventory. What exactly makes up merchandise inventory? In this lesson, you will not only learn the answer to that question, but also several other important factors that relate to merchandise inventory.

Inventory Cost: Definition, Methods & Types

3. Inventory Cost: Definition, Methods & Types

Have you ever thought about how much it costs a business to keep inventory in stock? It's not just the price the business pays for the items that it keeps in stock. It is so much more. In this lesson, we will discuss exactly what constitutes actual inventory cost.

Accounting for Inventory Purchases

4. Accounting for Inventory Purchases

A merchandising company must purchase inventory, and it has to be accounted for in the accounting records. In this lesson, you will learn how to calculate inventory purchase amounts as well as how to record them in the accounting journals.

Perpetual and Periodic Inventory Systems

5. Perpetual and Periodic Inventory Systems

Inventory management is an important part of business success. In this lesson, we will discuss the two types of inventory systems used in accounting today.

Recording Purchases Using the Perpetual System

6. Recording Purchases Using the Perpetual System

Every transaction that occurs in a business, whether it is a purchase or a sale, must be accounted for. In this lesson, you will learn how to record purchases using the perpetual inventory system.

Accounting for Inventory Sales

7. Accounting for Inventory Sales

In order to operate, a business must make sales. In this lesson, we are going to discuss sales of inventory. You will learn the types of sales made, the items that affect sales profit, and the way to record sales in the accounting records.

Recording Sales Using the Perpetual System

8. Recording Sales Using the Perpetual System

Each transaction that occurs in a business has an impact on at least two or more accounts. Because of that, recording transactions is essential. In this lesson, you will learn about recording sales transactions using the perpetual inventory system.

Reconciling the Bank Account After Purchases or Sales

9. Reconciling the Bank Account After Purchases or Sales

Even if your accounting skills are top notch, you still should make sure that the books have been reconciled with the bank account in question. This lesson explains why.

Inventory Counting: Process & Methods

10. Inventory Counting: Process & Methods

It is important for any business to know how much and what types of items that they have available to sell. In this lesson, you will learn what inventory is, how to count it, and why it is important.

Inventory Valuation Methods: Specific Identification, FIFO, LIFO & Weighted Average

11. Inventory Valuation Methods: Specific Identification, FIFO, LIFO & Weighted Average

This lesson introduces you to the cost flow assumption methods of specific identification: FIFO, LIFO, and weighted average. You will also learn how to compute inventory in a perpetual system using the methods of FIFO, LIFO, and weighted average.

The Importance of Evaluating Investment Management

12. The Importance of Evaluating Investment Management

Whether you're an individual or the financial manager of a company, the ability to evaluate your investment managers is a valuable skill in order to make sure that you are investing as much as possible.

The Effects of Financial Statements on Costing Methods

13. The Effects of Financial Statements on Costing Methods

The way you calculate the cost of your inventory can change the profit you show on your financial statement. Learn how one method can show higher profits, while the other method can give you tax benefits.

The Effects of Inventory Errors

14. The Effects of Inventory Errors

For companies, a miscount of inventory can be a serious issue. In this lesson we'll look at the effects of inventory errors on companies, both with respect to profits and how the error should be recorded.

Net Realizable Value of Inventory: Definition & Method

15. Net Realizable Value of Inventory: Definition & Method

Calculating inventory value is essential for correct reporting in accounting records. In this lesson, we are going to discuss what net realizable value is and why it plays an important role in inventory valuation.

The Lower of Cost or Market of Inventory: Definition & Method

16. The Lower of Cost or Market of Inventory: Definition & Method

No matter what kind of inventory a company has, that inventory has value. In this lesson, we'll talk about valuing inventory using the lower of cost or market rule.

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