Lesson Plan 2.3 – Accounting for Inventories
Course Title: Accounting II
Lesson Title: Accounting for Inventories
Specific Objective:
Learn and apply the procedures for accounting for inventories.
TEKS: 130.167.c.2.G.J.K.
TAKS: R1, M10
Performance Objectives:
 Explain the importance of inventory valuation;
 Explain the difference between a Perpetual and a Periodic Inventory System;
 Determine the cost of merchandise inventory using the Specific Identification,
FIFO, LIFO, and Weighted Average Cost methods;
 Assign a value to merchandise inventory using Lover-of-cost-or-market rule.
 Estimate the cost of the ending inventory using the Retail and the Gross Profit
methods;
 Explain how incorrect valuation of inventory affects financial statements;
 Analyze inventory turnover;
 Define accounting terms related to the lesson.
Preparation
Materials and Equipment Checklist:
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Overhead projector
Glencoe’s Textbook, Chapter 5, (pp. 142-161), and Demonstration Problems
Century 21’s Textbook, Chapter 6, (pp. 166-184).
Accounting software and spreadsheet software.
Teaching Strategies:
Demonstrate problems from textbooks.
Sponge/Focus Activity:
Exploring the Real World of Business, (p. 142)
Lesson Content:
See Glencoe’s Textbook, Chapter 5, (pp. 142-161), or Century 21’s Textbook,
Chapter 6, (pp. 166-184). Here’s an outline:
I.
II.
Determining the Quantity of Inventories
a. Merchandise inventory
b. Managing the inventory
c. Inventory systems
1.
The Perpetual Inventory System
2.
The Periodic Inventory System
3.
The Physical Inventory
Assigning costs to the ending inventory
Lesson Plan 2.3 – Accounting for Inventories
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
III.
a. Methods of determining inventory costs
1. The Specific Identification method
2. The First-In, First-Out method
3. The Last-In, First-Out method
4. The Weighted Average Cost method
b. Comparing inventory costing methods
c. Choosing an inventory costing method
Inventory valuation, reporting, and analysis
a. Reporting inventory using the Lower-Of-Cost-or-Market Rule
b. Estimating the cost of inventory
1. The Retail method of Estimating Inventory Cost
2. The Gross Profit method of Estimating Inventory Cost
c. Reporting inventory on financial statements
d. Analyzing inventory turnover
Assessment:

For problems you can use Peachtree Accounting from Glencoe, Glencoe
Accounting Software, Century 21 Accounting Software, or a spreadsheet.

From Glencoe’s Textbook Problems
o Guided Practice
 5-1 Understanding Inventory Systems, p. 147
 5-2 Comparing the Inventory Costing methods, p. 152
 5-3 Calculating Merchandise Inventory Turnover, p. 160
 5-4 Analyzing a Source Document, p. 160
o Independent Practice
 5-5 Spreadsheet Problem: Costing Inventory Using the Specific
Identification method, p. 165
 5-6 Spreadsheet Problem: Costing Inventory Using the FIFO
and LIFO methods, p. 165
 5-7 Spreadsheet Problem: Costing Inventory Using the
Weighted Average Cost method, p. 165
 5-8 Assigning Costs to the Ending Inventory, p. 166
 5-9 Spreadsheet Problem: Assigning Inventory Costs and
Determining Gross Profit, p. 167
 5-10 Estimating Inventory Cost, Cost of Merchandise Sold, and
Gross Profit, p. 167
o Additional Activities: Using Key Terms, Understanding Accounting
Concepts and Procedures, Case Study, Conducting an Audit with Alex,
Internet Connection, and Workplace Skills, pp. 162-163
From Century 21’s Textbook
o Guided Practice
 Work Together: Completing a stock record for a perpetual
inventory system, p. 172
 On Your Own: Completing a stock record for a perpetual
inventory system and comparing it to an inventory record, p. 172
 Work Together: Costing ending inventory using FIFO, LIFO,
and weighted average, p. 178
 On your Own: Costing ending inventory using FIFO, LIFO, and
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Lesson Plan 2.3 – Accounting for Inventories
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
weighted average, p. 178
Work Together: Estimating inventory using the gross profit and
retail methods, p. 183
 On your Own: Estimating inventory using the gross profit and
retail methods, p. 183
o Independent Practice
 6-1 Keeping perpetual inventory records, p. 185
 6-2 Determining inventory cost using FIFO, LIFO, weighted
average, and lower of cost or market, p. 186
 6-3 Estimating cost of merchandise inventory using estimating
methods, p. 186
 6-4 Calculating merchandise inventory turnover ratio and
average number of days’ sales in merchandise inventory, p. 187
 6-5 Determining cost of merchandise inventory; estimating cost
of merchandise inventory using estimating methods; calculating
merchandise inventory turnover ratio and average number of
days’ sales in merchandise inventory, p. 187-188
 6-6 Determining the unit price of merchandise inventory
purchases, p. 188
o Additional Activities: Applied Communication and Cases for Critical
Thinking, p. 189
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This lesson is also assessed through the Unit Test at the end of the Unit.
Additional Resources:
Textbooks:
Guerrieri, Donald J., F. Barry Haber, William B. Hoyt, and Robert E. Turner,
Glencoe Accounting Real-World Applications & Connections, Advanced
Course, Fourth Edition, Glencoe McGraw-Hill: New York, New York.
Ross, Kenton E., CPA, Mark W. Lehman, CPA, Claudia Bienias Gilbertson, CPA,
Robert D. Hanson, Century 21 Accounting Advanced, Anniversary Edition,
Thomson South-Western: Mason, OH, 2003.
Multimedia:
Century 21’s Teacher’s Resource CD
Websites:
http://accounting.swpco.com
Lesson Plan 2.3 – Accounting for Inventories
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II