There are no prerequisites

Course Description

Inventory can be the largest asset that a company owns, and is one of the most complex to track and value. This presents a risk to the accountant, since an inventory misstatement could be large enough to alter the financial statements significantly. This course presents every issue that the accountant might need to create and maintain an accurate and comprehensive system of inventory accounting. Topics covered include inventory record accuracy, how to count inventory, the costs to assign to inventory, when to adjust recorded balances, and much more.


Steven M. Bragg, CPA

Steven M. Bragg, CPA, is a full-time book and course author who has written more than 70 business books. He provides Western CPE with self-study courses in the areas of accounting and finance, with an emphasis on the practical application of accounting standards and management techniques. A sampling of his courses include the The New Controller Guidebook, The GAAP Guidebook, Accountants’ Guidebook, and Closing the Books: An Accountant’s Guide. He also manages the Accounting Best Practices podcast.

Steven has been the CFO or controller of both public and private companies and has been a consulting manager with Ernst & Young and an auditor with Deloitte & Touche. He holds an MBA from Babson College, a Master of Finance from Bentley College, and a BA from the University of Maine (summa cum laude).

Course Specifics

Oct 25, 2018
There are no prerequisites

Compliance Information

Qualifies for CA Fraud: No

Learning Objectives

Upon successful completion of this course, participants will be able to:

Chapter 1

  • Identify the types of inventory and recognize the timing of inventory ownership.

Chapter 2

  • Specify the situations in which the periodic and perpetual inventory systems should be used, and how the perpetual system can be enhanced.

Chapter 3

  • Identify the situations that can cause incorrect inventory transactions.

Chapter 4

  • Recognize the activities needed to establish a system of inventory record keeping, and how such a system may be rendered less accurate.

Chapter 5

  • Estimate ending inventory using the retail method.

Chapter 6

  • Identify the contents and calculation methods used for all systems of cost layering.

Chapter 7

  • Recognize the calculation methods for and causes of variances from standard costs.

Chapter 8

  • Identify the accounting for and uses of a job costing system.

Chapter 9

  • Specify the calculation methods and inputs needed to operate a process costing system.

Chapter 10

  • Specify the contents of and controls over the use of overhead.

Chapter 11

  • Identify who is responsible for spotting obsolete inventory, as well as the methods used to account for it.

Chapter 12

  • Recognize the cost classifications used in the lower of cost or market rule.

Chapter 13

  • Specify the accounting for spoilage, scrap, and rework.

Chapter 14

  • Identify the methods of allocation for joint costs and by-products.

Chapter 15

  • Recognize the disclosures associated with inventory.

Chapter 16

  • Identify the contents of the various accounting entries needed to record inventory transactions.

Chapter 17

  • Identify the rules promulgated by the Internal Revenue Service that relate to inventory.

Chapter 18

  • Itemize the pricing methods that can be used to compile transfer prices between subsidiaries, as well as the issues associated with each one.

Chapter 19

  • Identify the controls that can be used in the purchasing, receiving, and shipping of inventory.

Chapter 20

  • Specify the kinds of inventory-related activities that can be fraudulently employed to alter financial results or steal assets.

Chapter 21

  • Identify those policies that can be used to support accounting transactions related to inventory.

Chapter 22

  • Recognize the calculation methods used for the various budgets that include inventory, as well as the issues to consider when constructing these budgets.

Chapter 23

  • Specify how the results of various inventory measurements can be interpreted, when these measurements should be used, and the types of behavior they can reinforce.

Table of Contents


Chapter 1 – Overview of Inventory

Learning Objectives


The Definition of Inventory

Accounting for Inventory

Inventory Transactions

Inventory Flow in a Push Environment

Inventory Flow in a Pull Environment


Chapter 1 – Review Questions

Chapter 2 – Periodic and Perpetual Inventory Systems

Learning Objectives


The Periodic Inventory System

The Perpetual Inventory System


Chapter 2 – Review Questions

Chapter 3 – Inventory Record Accuracy

Learning Objectives


Inventory Record Errors

Environmental Factors Impacting Record Accuracy

Employee Factors Impacting Record Accuracy

Labeling Issues Impacting Record Accuracy

Inventory Naming Conventions Impacting Record Accuracy

Excessive Data Recordation

Inventory Data Collection Methods

The Data Entry Backlog Problem


Controls over Record Accuracy

Inventory Review Reports

The Negative Inventory Balance

Inventory Auditing


Chapter 3 – Review Questions

Chapter 4 – Inventory Counting and Reconciliation

Learning Objectives


How to Set Up Inventory Record Keeping

The Physical Inventory Count

Concerns about the Physical Inventory Count

Physical Count Improvements

Cycle Counting

Control Group Analysis

100% Count Analysis

Inventory Reconciliation


Chapter 4 – Review Questions

Chapter 5 – Estimating Ending Inventory

Learning Objectives


The Gross Profit Method

The Retail Inventory Method

The Effect of Overstated Ending Inventory


Chapter 5 – Review Questions

Chapter 6 – Inventory Cost Layering

Learning Objectives


Inventory Cost Layering Overview

The First in, First out Method

The Last in, First out Method

The Dollar-Value LIFO Method

The Link-Chain Method

The Weighted Average Method

The Specific Identification Method


Chapter 6 – Review Questions

Chapter 7 – Standard Costing of Inventory

Learning Objectives


Overview of Standard Costing

How to Create a Standard Cost

Historical, Attainable, and Theoretical Standards

How to Account for Standard Costs

Overview of Variances

The Purchase Price Variance

Material Yield Variance

Labor Rate Variance

Labor Efficiency Variance

Variable Overhead Spending Variance

Variable Overhead Efficiency Variance

Fixed Overhead Spending Variance

Problems with Variance Analysis

The Controllable Variance

The Favorable or Unfavorable Variance

Where to Record a Variance

Which Variances to Report

How to Report Variances


Chapter 7 – Review Questions

Chapter 8 – Job Costing

Learning Objectives


Overview of Job Costing

When Not to Use Job Costing

Accounting for Direct Materials in Job Costing

Accounting for Labor in Job Costing

Accounting for Actual Overhead Costs in Job Costing

Accounting for Standard Overhead Costs in Job Costing

The Importance of Closing a Job

The Role of the Subsidiary Ledger in Job Costing


Chapter 8 – Review Questions

Chapter 9 – Process Costing

Learning Objectives


Overview of Process Costing

The Weighted Average Method

The Standard Costing Method

The First In, First Out Method

The Hybrid Costing System

Process Costing Journal Entries

Problems with Process Costing


Chapter 9 – Review Questions

Chapter 10 – Overhead Allocation

Learning Objectives


Overhead Allocation

Averaging of Overhead Rates


Chapter 10 – Review Questions

Chapter 11 – Obsolete Inventory

Learning Objectives


Expected Dispositions Method

Reserve Method

Expensing Method

Issues with Obsolete Inventory Recognition


Chapter 11 – Review Questions

Chapter 12 – The Lower of Cost or Market Rule

Learning Objectives


The Lower of Cost or Market Rule

Inventory Translation Adjustment

Practical Application


Chapter 12 – Review Questions

Chapter 13 – Inventory Spoilage, Rework, and Scrap

Learning Objectives


Definition of Spoilage

Accounting for Normal Spoilage

Accounting for Abnormal Spoilage

Accounting for the Sale of Spoilage

Cost Allocation to Spoilage

Definition of Rework

Reporting Rework

Accounting for Rework

Definition of Scrap

Accounting for Scrap


Chapter 13 – Review Questions

Chapter 14 – Joint and By-Product Costing

Learning Objectives


Split-Off Points and By-Products

Why We Allocate Joint Costs

Joint Cost Allocation

Joint Product and By-Product Pricing

Special Concerns with By-Product Costing


Chapter 14 – Review Questions

Chapter 15 – Inventory Disclosures

Learning Objectives


Inventory Disclosures


Chapter 15 – Review Questions

Chapter 16 – Inventory Transactions

Learning Objectives


Initial Cost Recognition

Acquired Inventory Transactions

Backflushing Transactions

Bill-and-Hold Transactions

Consignment Transactions

Cross Docking Transactions

Drop Shipping Transactions

Engineering Change Order Transactions

Goods in Transit Transactions

Kitting Transactions

Lower of Cost or Market Adjustments

Obsolete Inventory Adjustments

Overhead Allocation Transactions

Physical Count Adjustments

Receiving Transactions

Sale Transactions

Scrap and Spoilage Adjustments


Chapter 16 – Review Questions

Chapter 17 – Internal Revenue Code for Inventory

Learning Objectives


IRC Section 471 – General Rule for Inventories

IRC Section 472 – Last in, First out Inventories

IRC Section 473 – Qualified Liquidations of LIFO Inventories

IRC Section 1504(a) – Affiliated Group


Chapter 17 – Review Questions

Chapter 18 – Inventory Transfer Pricing

Learning Objectives


Overview of Transfer Pricing

Market Price Basis for Transfer Pricing

Adjusted Market Price Basis for Transfer Pricing

Negotiated Basis for Transfer Pricing

Contribution Margin Basis for Transfer Pricing

Cost Plus Basis for Transfer Pricing

Cost Anomalies in a Cost-Based Transfer Price

Pricing Problems Caused by Transfer Pricing

The Tax Impact of Transfer Prices


Chapter 18 – Review Questions

Chapter 19 – Inventory Controls

Learning Objectives


Purchasing Process Overview

In-Process Purchasing Controls

Additional Purchasing Controls – Fraud Related

Additional Purchasing Controls – Periodic Actions

Receiving Process Overview

In-Process Receiving Controls

Additional Receiving Controls – Fraud Related

Additional Receiving Controls – Periodic Actions

Shipping Process Overview

In-Process Shipping Controls

Additional Shipping Controls – Fraud Related

Additional Shipping Controls – Periodic Actions

Intercompany Controls

Inventory Valuation Controls

Warehouse Controls

Production Controls


Chapter 19 – Review Questions

Chapter 20 – Fraudulent Inventory Transactions

Learning Objectives


Those Who Commit Fraud

Financial Statement Fraud – Labor Component

Financial Statement Fraud – Materials Component

Financial Statement Fraud – Overhead Component

Revenue Fraud

Inventory Theft

Common Fraud Risk Factors

Fraud Prevention Tactics


Chapter 20 – Review Questions

Chapter 21 – Inventory Policies

Learning Objectives


Inventory Policies

Receiving Policy

Point of Ownership Policy

Responsibility for Inventory Policy

Inventory Access Policy

Inventory Owned by Third Parties Policy

Consigned Inventory Identification Policy

Physical Count Policy

Cycle Counting Policy

Inventory Record Access Policy

Bill of Material Updates Policy

Standard Costing Updates Policy

Lower of Cost or Market Updates

Obsolete Inventory Updates

Bill-and-Hold Policy

Collections Take-Back Policy


Chapter 21 – Review Questions

Chapter 22 – Inventory Budgeting

Learning Objectives


The Production Budget

Other Production Budget Issues

Budgeting for Multiple Products

Ending Inventory Concepts

Impact of Changes in Ending Inventory

The Ending Finished Goods Inventory Budget

Direct Materials Budgeting Overview

The Direct Materials Budget (Roll-up Method)

The Direct Materials Budget (Historical Method)

The Direct Materials Budget (80/20 Method)

Anomalies in the Direct Materials Budget

The Role of the Direct Materials Budget


Chapter 22 – Review Questions

Chapter 23 – Inventory Measurements

Learning Objectives


Overview of Inventory Measurements

Average Inventory Calculation

Inventory Turnover Measurements

Inventory Turnover Ratio

Raw Materials Turnover

Work-in-Process Turnover

Finished Goods Turnover

Inventory Accuracy Percentage

Excess Inventory Measurements

Obsolete Inventory Percentage

Percent of Inventory Greater than XX Days

Returnable Inventory Valuation

Opportunity Cost of Excess Inventory


Chapter 23 – Review Questions

Review Question Answers and Rationales



Final Examination

Answer Sheet

Course Evaluation


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