Inventory
ADMN 1107
Distance Education
Inventory
Examples of Inventory
Try to think of some typical inventory items and
some not so typical inventory items
Inventory is one of the most important items
on the balance sheet – and often one of the
biggest.
Inventory Fraud
Signs of Inventory Fraud
Missing documents.
Second Endorsements on checks.
Unusual endorsements on checks.
Unexplained adjustments to inventory balances.
Stale items in bank reconciliations.
Old outstanding checks.
Customer complaints
Unusual patterns in deposits in Transit.
Signs of Inventory Fraud
Employees who exceed the scope of their
responsibilities.
An unusual reduction in, or less of, a regular
customer’s business.
Absentee ownership of a small business.
An employee who appears to be living beyond his
means.
Open-ended contracts with suppliers.
An unusual increase in purchases by a customer
during a brief period.
Inventory Fraud
Crazy Eddie
The Salad Oil Swindle
These are two interesting fraud cases that you
may wish to research on the Internet
Valuation
Valuation
Historical Cost
Cost [laid down cost] when acquired
Market Value
Replacement cost
Net realizable value
Canada uses LCM
Write-Downs
Can be done individually or in groups
Most often a group of assets
Allowance Method used
Contra Account
Adjusted on a yearly basis
Inventory Systems
Perpetual
Most often used
Inventory account is updated for purchases and
sales
Periodic
Goods are put through a purchases account
Costs and Benefits?
Cost Flow Assumptions
FIFO
Most common
First goods in are the first sold – so from a COGS
perspective
LIFO
In times of rising prices produces lowest income
WAC
2nd most common
Inventory Estimation
Why do we need to estimate inventory?
Use a retail method
Cost-to-sales ratio
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