Accounting Study Set 8

Business

Quiz 7 :
Inventores

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Quiz 7 :
Inventores

FOB shipping point In FOB shipping point, the seller considers that the sale has taken place as soon as the goods are shipped from the shipping point. The title passes to the buyer with the loading of goods at the point of shipment. Therefore, as the title passes at the shipping point, the goods in transit will legally include in the inventory of the buyer. Terms of shipping and transfer of title: • The buyer has to pay the shipment cost as per FOB. • The seller must include the merchandise in transit as sales in the income statement just after the goods delivered at the shipping point. • The buyer must include the merchandise in transit as an asset just after the goods are delivered at the shipping point. Here, A Co. is experiencing a decrease in sales and operating income for the fiscal year ending October 31, 2014. R is trying to ship the goods at earliest for the order received and there is nothing unethical in it. His approach is very professional and operating within the allowed framework without violating any of the accounting rules. The given sales will be included in the fiscal year ending October 31, 2014. Hence, it can be said that R is behaving in a professional manner.

Inventory purchases: Inventory purchases mean the inventory that has been purchased from outside vendors as per the requirements of production. The amount of inventory purchases to be recorded in the books of accounts is the cost incurred to purchase the inventory. Cost incurred to purchase inventory is the cost paid to the vendor for acquiring the inventory. Accounting for inventory purchases: Before recording the amount of inventory purchases in the books of accounts, the receiving report of the inventory is to be reconciled with the relevant documents. It is reconciled to record the purchase at correct amount. The relevant documents used to reconcile with the receiving report are purchase order and the vendor invoice. The purchase order is the order of the requirements of the inventory made by the company to vendor. Vendor invoice is the invoice sent by the vendor for the amount due by the company. The purchase order and the vendor invoice is reconciled with the receiving report because the excess inventory or the less inventory received will be returned or additional order can be raised to the vendor. If the inventory received is not as per the requirements of the company then it will be returned to the vendor. This process of reconciliation is adapted in order to avoid many entries in the books of accounts. Thus, the relevant documents to reconcile with the receiving report are purchase order and vendor invoice.

Yes, Switching to perpetual inventory system will strengthen H store's control over Inventory items. Because when the periodic inventory system is used, only revenue is recorded each time a sale is made. No entry is made at the time of the sale to record the cost of merchandise sold. At the end of accounting period, a physical inventory is taken to determine the cost of the inventory and cost of merchandise sold. But in perpetual inventory system, entry to record the cost of merchandise sold is made at the time of merchandise sold and this system also tells daily balance with the total cost of inventory held. So if you have daily information about your inventory you can control it in a better way. But switching to perpetual inventory system cannot eliminate the need for a physical inventory count because to make sure that the quantity of inventory reported in financial statements is accurate. It gives the report of inventory loss or any error due to theft or any other reason.

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