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Title: Gross Profit Method of Inventory Estimation (Lecture/Exercises)
Description: This document will teach you the step by step process of estimating inventory using the Gross Profit Method. The breakthrough of the lesson is very simple to understand. There are exercises with answers and computations included to understand the topic better. Intermediate Accounting
Description: This document will teach you the step by step process of estimating inventory using the Gross Profit Method. The breakthrough of the lesson is very simple to understand. There are exercises with answers and computations included to understand the topic better. Intermediate Accounting
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Inventory Estimation Methods
Inventories have high inherent risk
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Estimation method- used to give a reliable measurement to inventory
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Gross Profit Method – usually used when there are catastrophies
...
2
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Example: Used in malls or stores
...
*Estimation happens when physical count alone is not enough to give a reliable measurement of the
inventory
...
Exception: If sales returns and allowances are together
...
Gross Profit Method uses the COGS Method of accounting for ending inventory and Cost of
Goods Sold:
Beginning Inventory
Net Purchases +Freight In
Note: Net Purchases = Purchases
– Returns – Allowances Discounts
-
Goods Available for Sale
(Estimated COGS)
Estimated Ending Inventory
How to estimate the COGS?
By getting the relationship between the Sales
and COGS
...
This helps preserve the Gross Profit ratio and Cost ratio
...
-Inventory Per Count
During the inventory count, you only have 90
...
Estimated Ending Inventory
-Inventory Per Count
-Goods not in Possession
Inventory Shortage
Note: Goods not in possession can either be Goods in transit or Goods in Consignment
Title: Gross Profit Method of Inventory Estimation (Lecture/Exercises)
Description: This document will teach you the step by step process of estimating inventory using the Gross Profit Method. The breakthrough of the lesson is very simple to understand. There are exercises with answers and computations included to understand the topic better. Intermediate Accounting
Description: This document will teach you the step by step process of estimating inventory using the Gross Profit Method. The breakthrough of the lesson is very simple to understand. There are exercises with answers and computations included to understand the topic better. Intermediate Accounting