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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Control of inventories

Hardcase Luggage Shop is a small retail establishment located in a large shopping mall. This shop has implemented the following procedures regarding inventory items:

  1. a. Because the shop carries mostly high quality, designer luggage, all inventory items are tagged with a control device that activates an alarm if a tagged item is removed from the More.
  2. b. Because the display area of the store is limited, only a sample of each piece of luggage is kept on the wiling floor. Whenever a customer selects a piece of luggage, the salesclerk gets the appropriate piece from the store’s stockroom. Because all salesclerks need access to the stockroom, it is not locked. The stockroom is adjacent to the break room used by all null employees.
  3. c. Whenever Hardcase Luggage Shop receives a shipment of new inventory, the items are taken directly to the stockroom. Hardcase’s accountant uses the vendor’s invoice to record the amount of inventory received.

State whether each of these procedures is appropriate or inappropriate. If it is inappropriate, explain why.

(a)

To determine

Control over inventory is a technique whereby the inventory is safeguarded as soon as the order of inventory is made. The two main objectives of control of inventory are:

  1. a) Safeguarding of inventory from theft and damage
  2. b) Recording and reporting inventory in the financial statement of the company.

To state: If the procedure of tagging a control device with inventory items in the store is appropriate.

Explanation

Yes, it is appropriate. The inventory tags which are assigned by the store management will help in safeguarding from customer theft...

(b)

To determine

To state: the procedure of not locking the store’s stockroom is appropriate.

(c)

To determine

To state: the procedure of record the amount of inventory received from vendor’s invoice is appropriate.

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