Quiz 16: Financial Merchandise Management

Business

Perpetual inventory system: Perpetual inventory system is the method used to control inventory by maintaining the total units switched over by the retailer. It can be applied either manually or by using computer. The following retailers can best use this inventory system based on the cost method: • Car dealers • Furniture stores • Large appliance dealers • Jewelry stores

Valuation of inventory: The following are the two methods used to value the inventory of the company: • FIFO (first-in-first-out) method: Old items should be sold first and new items should be kept in inventory. • LIFO (last-in-first-out) method: New items should be sold first and old items should be kept in inventory. Many retailers use LIFO method because of the following reasons: • It matches present sales with the present structure of cost. • It shows a lower profit which helps to reduce the tax payments while increasing costs of inventory.

Retail method of accounting: Retail method of accounting is the accounting method used by the retailer who wants to reduce the errors made while evaluating the inventory. Basic premises of the retail method: The following are the basic steps used for determining the ending inventory in the retail accounting method: • Determining the cost complement • Determining retail value deductions • Converting the inventory value of retail from the dollar value of retail to cost