Self-Study
13
Overview
Accounting
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.



Instructor

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

Accounting
Nov 28, 2016
There are no prerequisites.
SS1153387
280
None


Compliance Information

103220
Qualifies for CA Fraud: No


Learning Objectives

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

Chapter 1

  • List an area that is not one of the basic inventory areas
  • Recognize what the MRP system is dependent upon
  • Name the item that reduces inventory in a just-in-time system
  • Cite an example of investment inventory
  • Define the type of delivery terms when ownership passes to the buyer as soon as goods leave the supplier
  • Specify the method used to compile costs for small production runs and when subsidiaries buy goods from one another

Chapter 2

  • Recognize what a periodic inventory system depends on
  • Define the term for the sum of beginning inventory and purchases
  • Name the type of system that is useful when there is a significant investment in inventory
  • Identify the type of organization for whom the periodic inventory system would be most useful
  • Specify a process that can supplement the perpetual inventory system

Chapter 3

  • Identify a good data collection method when the workforce is very mobile
  • List a problem with backflushing
  • Name what is designed to be detected by running a report showing locations with zero inventory
  • Specify what may be needed if there is a sudden spike in error rates
  • Recognize when label adhesion would be a concern

Chapter 4

  • List a step that would be unnecessary if trying to improve the physical inventory count and one that would be unnecessary when reconciling inventory
  • Identify the basis on which cycle counting should select inventory items for reporting an accurate inventory valuation
  • Recognize how a physical inventory count may result in less accurate records
  • Note when a 100% count analysis should be used
  • List a reason why using the wrong part number could result in an inventory error and why an inventory item may not appear in accounting records

Chapter 5

  • Specify when the results of the gross profit method can be made ineffective
  • List the items being related in the retail method
  • Recognize the effect of overstating inventory in the current period
  • Calculate estimated ending inventory

Chapter 6

  • Name a characteristic of the FIFO method and the LIFO method
  • List the items used to calculate the dollar-value conversion price index
  • Cite the basis for the dollar-value LIFO method and what should be done if base-year cost information is not available
  • Identify the advantage of the weighted average method
  • Specify a consequence of combining the perpetual inventory system with a weighted-average costing system
  • Recognize when the specific identification method works best

Chapter 7

  • List an item that is not a factor in creating a standard cost
  • Recognize what a theoretical standard and controllable overhead variance are based on
  • Specify a possible cause of a purchase price variance and a fixed overhead spending variance
  • Define a term for when the use of direct labor relates to volume variance
  • Calculate labor efficiency variance

Chapter 8

  • Identify when job costing should be used and when to charge direct labor to a job
  • Name a way that is not used to dispose of the difference between standard and actual overhead costs
  • Specify the proper entry of job costs when raw material components are transferred during the production process
  • Recognize the purpose of charging standard overhead costs to jobs
  • Name the type of pricing where customers will most interested in the allocation of costs to their jobs
  • List where accounting transactions at the job level would not be listed

Chapter 9

  • Identify something that is not a characteristic of a hybrid costing system
  • Note how process costing treats the production process and the largest problem with process costing
  • Identify a costing method that is not used for generating a cost per unit in process costing
  • Define work-in-process inventory
  • Name the key step when using FIFO in the process costing environment that differentiates it from the weighted average and standard costing methods
  • Specify the best costing system when a business charges costs to products at both the individual unit and batch levels

Chapter 10

  • Define a cost pool
  • Identify a cost not included in manufacturing overhead and one included in administrative overhead
  • Identify an overhead allocation method that may help with closing the books more quickly
  • Cite an alternative when the basis of allocation does not work for all types of overhead costs
  • Name the group responsible for looking at inventory usage reports to determine items that should be disposed of

Chapter 11

  • Identify the basis of the expected dispositions method and what it requires of an accountant
  • Specify the basis and a benefit of the reserve method
  • Cite a concern with recognition of obsolete inventory
  • Name the best accounting method for a company with an immaterial amount of inventory obsolescence

Chapter 12

  • Recognize when the LCM rule is applied and an additional application of the concept
  • Note ways to improve the efficiency of enacting the LCM rule
  • Define net realizable value

Chapter 13

  • Define spoilage and specify something that is not true of spoilage
  • Note how to account for normal and abnormal spoilage and a characteristic of the entry for abnormal spoilage
  • Identify when spoilage frequently occurs
  • Define rework

Chapter 14

  • Define a split-off point and a by-product
  • Note what is avoided by allocating joint costs
  • Recognize how the minimum short-term price for joint products is determined
  • Cite the basis for a common method of allocating joint costs

Chapter 15

  • Identify a result of a significant change in the basis of accounting
  • Name the types of losses caused by the LCM rule that require disclosure
  • Specify what should be disclosed if a company has firm purchase commitments related to inventory
  • Calculate the amount of disclosure for stock on-hand

Chapter 16

  • Cite something that is not characteristic of a bill-and-hold arrangement
  • Name a responsibility of a consignee in a consignment arrangement
  • Identify the two transactions that must be recorded when goods are sold to a third party
  • Recognize how a discount is recorded when a company buys inventory on credit and takes an early payment discount and when an acquirer buys another business in its entirety
  • Specify the purpose of backflushing

Chapter 17

  • Note the circumstances where the IRS allows use of inventory shrinkage estimates
  • Name the party that a company may report to using a different method than the LIFO method used for tax reporting
  • Specify when it is allowable to liquidate and reinstate a LIFO cost layer
  • Identify a transfer pricing strategy that can reduce overall corporate tax liability
  • Cite a way to derive the adjusted market price basis for transfer pricing

Chapter 18

  • Identify the area of corporate profitability that is impacted by transfer pricing
  • Note why the market price basis for transfer pricing is useful and what is involved in the contribution margin basis
  • Define a bilateral advance pricing agreement
  • Specify when the cost plus basis is acceptable for transfer pricing

Chapter 19

  • State why it is important to review open purchase orders
  • Cite a characteristic of rejecting excess material at the receiving dock
  • Specify why a shipping log is useful to the accounting department
  • Name an action involved in supplier certification
  • Recognize the use of the receiving log and prenumbered receiving reports

Chapter 20

  • Cite a method that is not used to fraudulently increase the labor component of ending inventory
  • Specify a way that a fraudster may report greater income by manipulating overhead
  • Name a pressure on employees that increases fraud risk
  • Identify a use for an all-inclusive bill of materials
  • Recognize when changing the cost layering system to increase reported profits works and when double counting inventory to increase ending inventory is most effective
  • Identify a way to avoid recognition of obsolete inventory
  • Name a valid business activity that could still be fraudulent

Chapter 21

  • Note the information protected by an inventory record access policy
  • Name a policy enacted when there is a change to an engineering change order and one that does not impact ending inventory valuation
  • Recognize the purpose of a receiving rejection policy and a customer-owned inventory segregation policy
  • Identify the purpose of physical count and cycle counting policies

Chapter 22

  • Identify an action that should not be taken when production constraints do not allow a company to meet planned production quantities and when budgeting for multiple products
  • Recognize why the amount of bottleneck time is reduced below the maximum when planning for production
  • Calculate the production budget and specify the unit of measure for it
  • Calculate direct material purchases
  • Cite a cause or effect of a bill of materials being incorrect when using the roll-up method

Chapter 23

  • Identify the party interested in raw materials turnover
  • Note the possible cause of a high finished goods turnover percentage
  • Name an element not used to calculate inventory accuracy
  • Cite the cause of a high work-in-process turnover level
  • Name a result of using the obsolete inventory percentage that can increase cash flow
  • Name the behavior reinforced by the use of the opportunity cost of excess inventory



Table of Contents

Preface

Chapter 1 – Overview of Inventory

Learning Objectives

Introduction

The Definition of Inventory

Accounting for Inventory

Inventory Transactions

Inventory Flow in a Push Environment

Inventory Flow in a Pull Environment

Summary

Chapter 1 – Review Questions

Chapter 2 – Periodic and Perpetual Inventory Systems

Learning Objectives

Introduction

The Periodic Inventory System

The Perpetual Inventory System

Summary

Chapter 2 – Review Questions

Chapter 3 – Inventory Record Accuracy

Learning Objectives

Introduction

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

Backflushing

Controls over Record Accuracy

Inventory Review Reports

The Negative Inventory Balance

Inventory Auditing

Summary

Chapter 3 – Review Questions

Chapter 4 – Inventory Counting and Reconciliation

Learning Objectives

Introduction

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

Summary

Chapter 4 – Review Questions

Chapter 5 – Estimating Ending Inventory

Learning Objectives

Introduction

The Gross Profit Method

The Retail Inventory Method

The Effect of Overstated Ending Inventory

Summary

Chapter 5 – Review Questions

Chapter 6 – Inventory Cost Layering

Learning Objectives

Introduction

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

Summary

Chapter 6 – Review Questions

Chapter 7 – Standard Costing of Inventory

Learning Objectives

Introduction

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

Summary

Chapter 7 – Review Questions

Chapter 8 – Job Costing

Learning Objectives

Introduction

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

Summary

Chapter 8 – Review Questions

Chapter 9 – Process Costing

Learning Objectives

Introduction

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

Summary

Chapter 9 – Review Questions

Chapter 10 – Overhead Allocation

Learning Objectives

Introduction

Overhead Allocation

Averaging of Overhead Rates

Summary

Chapter 10 – Review Questions

Chapter 11 – Obsolete Inventory

Learning Objectives

Introduction

Expected Dispositions Method

Reserve Method

Expensing Method

Issues with Obsolete Inventory Recognition

Summary

Chapter 11 – Review Questions

Chapter 12 – The Lower of Cost or Market Rule

Learning Objectives

Introduction

The Lower of Cost or Market Rule

Inventory Translation Adjustment

Practical Application

Summary

Chapter 12 – Review Questions

Chapter 13 – Inventory Spoilage, Rework, and Scrap

Learning Objectives

Introduction

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

Summary

Chapter 13 – Review Questions

Chapter 14 – Joint and By-Product Costing

Learning Objectives

Introduction

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

Summary

Chapter 14 – Review Questions

Chapter 15 – Inventory Disclosures

Learning Objectives

Introduction

Inventory Disclosures

Summary

Chapter 15 – Review Questions

Chapter 16 – Inventory Transactions

Learning Objectives

Introduction

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

Summary

Chapter 16 – Review Questions

Chapter 17 – Internal Revenue Code for Inventory

Learning Objectives

Introduction

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

Summary

Chapter 17 – Review Questions

Chapter 18 – Inventory Transfer Pricing

Learning Objectives

Introduction

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

Summary

Chapter 18 – Review Questions

Chapter 19 – Inventory Controls

Learning Objectives

Introduction

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

Summary

Chapter 19 – Review Questions

Chapter 20 – Fraudulent Inventory Transactions

Learning Objectives

Introduction

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

Summary

Chapter 20 – Review Questions

Chapter 21 – Inventory Policies

Learning Objectives

Introduction

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

Summary

Chapter 21 – Review Questions

Chapter 22 – Inventory Budgeting

Learning Objectives

Introduction

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

Summary

Chapter 22 – Review Questions

Chapter 23 – Inventory Measurements

Learning Objectives

Introduction

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

Summary

Chapter 23 – Review Questions

Review Question Answers and Rationales

Glossary

Index

Final Examination

Answer Sheet

Course Evaluation

 



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