Preface
xvi
The Impact of Inventory Error................................................................................................................ 235
The Lower of Cost and Net Realizable Value............................................................................................ 235
Methods of Estimating Inventory................................................................................................................ 237
The Gross Profit Method.......................................................................................................................... 237
The Retail Method...................................................................................................................................... 239
Measuring Inventory Using Financial Ratios............................................................................................ 240
Inventory Turnover Ratio......................................................................................................................... 240
Inventory Days on Hand.......................................................................................................................... 241
An Ethical Approach to Inventory Estimation and Valuation............................................................ 242
Impact on Financial Statements............................................................................................................ 242
Who Commits Fraud andWhy?............................................................................................................. 243
In Summary.......................................................................................................................................................... 245
Review Exercise.................................................................................................................................................. 247
Appendix 8A: Periodic Inventory Valuation............................................................................................. 249
Using Specific Identification................................................................................................................... 249
Using First-In, First-Out............................................................................................................................. 250
Using Weighted-Average Cost............................................................................................................... 251
The Effect of Different Valuation Methods: Periodic...................................................................... 252
In Summary.......................................................................................................................................................... 254
Review Exercise.................................................................................................................................................. 255
Chapter 9: Accounting Information Systems
The Accounting Paper Trail............................................................................................................................. 257
Special Journals........................................................................................................................................... 258
Subsidiary Ledgers..................................................................................................................................... 259
Using Special Journals and Subsidiary Ledgers...................................................................................... 261
The Sales Journal........................................................................................................................................ 262
The Cash Receipts Journal....................................................................................................................... 264
The Purchases Journal.............................................................................................................................. 267
The Cash Payments Journal.................................................................................................................... 269
Returns........................................................................................................................................................... 272
Computerized Accounting............................................................................................................................. 274
In Summary.......................................................................................................................................................... 275
Review Exercise.................................................................................................................................................. 276
Appendix 9A: Special Journals and Periodic Inventory....................................................................... 281
In Summary.......................................................................................................................................................... 283
Review Exercise.................................................................................................................................................. 284
