Question

c. PurehOSL d. Sales by Item Detail (33 pts) e. Journal (128 pts) f. Profit & Loss Standard (April 1, 2019 - May 31 & Balance Sheet Standard (18 pts) Part 2 Short Answers.(30 pts) Please type your response and pay attention to your s 1)Your company wis spelling and grammatical rules. nts to view the profitability of each inventory item. How could ntages of using a computerized accounting system to maintain a hes to determine which inventory items generate the most st r your su revenue. You're QuickBooks to develop this information? (15pts) you use inventory system. (15pts) perpetual Page 1 of 1

Answer 1

1) Which Inventory Items generate the most revenue:

The accounting for the costs of inventory depends on the cost flow method you chose. The four ones in common use are last in, first out (LIFO), first in, first out (FIFO) and weighted average cost. Each method can give a different value to ending inventory, cost of goods sold and net income. A higher COGS creates a lower, though not necessarily realistic, net income and reduces taxes.

• First-In, First-Out (FIFO): This method assumes that the first unit making its way into inventory is the first sold. For example, let's say that a bakery produces 200 loaves of bread on Monday at a cost of $1 each, and 200 more on Tuesday at $1.25 each. FIFO states that if the bakery sold 200 loaves on Wednesday, the COGS (on income statement) is $1 per loaf because that was the cost of each of the first loaves in inventory. The $1.25 loaves would be allocated to ending inventory (on balance sheet).
• Last-In, First-Out (LIFO): This method assumes that the last unit to arrive in inventory is sold first. The older inventory, therefore, is left over at the end of the accounting period. For the 200 loaves sold on Wednesday, the same bakery would assign $1.25 per loaf to COGS, while the remaining $1 loaves would be used to calculate the value of inventory at the end of the period.
• Average Cost: This method is quite straightforward. It takes the weighted average of all units available for sale during the accounting period and then uses that average cost to determine the value of COGS and ending inventory. In our bakery example, the average cost for inventory would be $1.125 per unit, calculated as [(200 x $1) + (200 x $1.25)]/400.

So, as per the above explanation First-in-First-Out (FIFO) will generate the most revenue for the company

Inventory Profitability in Quickbooks:

To assess the profitability of your inventory with QuickBooks, you need to generate a Profit and Loss Report. This report shows your business income and expenses, and between these two areas, you should see the cost of goods sold (COGS) and a gross profit line. Gross profits are the difference between your total income and COGS, and this is the amount of profit you have earned on your inventory. If you don’t see a gross profit line, change the accounting method from cash to accrual and run the report again. Break profits down by individual items so you can assess which items are the most profitable for your company.

b) Advantages of Computerized Inventory System:

1) Automated Reordering and In-Stock Information

Computerized inventory informs employees and customers within seconds whether an item is in stock. Because the inventory is synced with sales, there is a running tally of what is in stock and what isn't. This helps flag reordering needs and provides better service to customers. As inventory drops below a specific threshold, new orders are placed with vendors and tracked to let customers know when the new products will arrive.

2) Integration With Accounting

Many of the computerized inventory platforms integrate with accounting software to track cash flow. This makes the process of transferring inventory costs and assets between programs seamless and reduces the need for additional bookkeeping costs. Financial statements are more easily generated with shared data between inventory and bookkeeping.

3) Forecasting and Planning

Inventory management software does more than track where inventory is located and when to reorder it. A data collection system is used to create needed forecasting and strategic planning reports. Business owners review trends regarding which products do well in certain months or during specific cyclical seasons. Business owners use this data to plan for growth and order inventory intelligently to best utilize cash flow resources.

4) Quick, Accurate Counting

Even if you use a perpetual inventory system, you'll need to do a physical count occasionally to make sure your inventory records are accurate. One of the greatest advantages of a computerized inventory system is that it makes for faster, more accurate counting.

Scanning barcodes or QR codes is faster and easier than writing down stock numbers manually or flipping through pages of inventory sheets, looking for the correct item. It also means you won't have to transfer those numbers manually to your accounting software or inventory database, which eliminates another possible source of errors and several hours of data entry time. Instead, it's a quick electronic upload.

5) Reduced Shrinkage and Missing Inventory

Every time you count your inventory, you'll find that some of what you're supposed to have just isn't there. There are a number of potential reasons for that, with shoplifting and employee theft leading the list. Your own in-house administrative errors and vendor fraud are significant factors too.

According to figures from a 2017 National Retail Federation survey, they account for a combined total of more than 26 percent of shrinkage, which can add up to real money. By reducing opportunities for errors in your counting, shipping and receiving processes, computerized inventory systems can help bring that number down.

6) Real-Time Management Information

One of the crucial advantages of a computerized perpetual inventory system is that it gives you the management information you need in real time. That goes beyond current sales figures and inventory levels, to the heart of your operations. Consider your cost of goods sold (COGS), for example. It's a figure that measures how efficiently you turn your supplies into sales revenues, or in the case of a retailer, what margins you've made on the products you've sold.

In a periodic inventory system, you only truly know your COGS at the end of an inventory cycle, when you've physically counted your inventory and your accountant can do the math. In between, you work from a cost flow assumption, which amounts to little more than a "best guess." With a perpetual inventory system, you can see an up-to-date COGS at any time, which means you'll identify – and be able to correct – problems as they occur.

7) Allows for Accurate Restocking

In a perpetual inventory system, changes to inventory levels are recorded in real time, when inventory is purchased and when it is sold. This continuous stock taking provides you with the ability to run reports that can immediately identify inventory items that are running low.

It also prevents being out of stock for particular merchandise and losing customers because of it. When you discover that merchandise is out of stock or running low, you can quickly reorder it, rather than having to wait for your next scheduled inventory date.

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