There are two popular ways to record inventory. One is the perpetual method and the other is the periodic method. The perpetual method requires the manager to record each transaction involving inventory and calculate its gross profit in real time at each sale. The perpetual method is also the most common and popular method. The periodic method only measures the value of each ending inventory and the cost of sales; not one day a day.

With the perpetual method, we keep track of the movement of each item of inventories as it occurs each day; which, although a lot of work, is made much easier with the use of technology. With the periodic method, we need to go through the laborious task of counting each item of our firm’s inventories at the end. The one big advantage of the perpetual method is that we can clearly measure the cost of theft and wastage of our inventories each period. We can compare what the amount of inventories should be with the amount of inventories actually in our firm’s warehouse and stone shelves at the end of each period. We can then monitor the amount of theft or wastage of our inventories each period, and if this item becomes too large we can seek to better manage or reduce this problem. However, with perpetual records, the actual inventory is always lower than the inventory recorded in the account. Mostly due to theft and waste.

Inventory is calculated at a lower cost or market value, which means that when the market value is lower than the cost, the inventory value falls to market value. There are three main cost formulas: First in, first out (FIFO), Weighted average (AVGE), Last in, first out (LIFO). LIFO is used when it is assumed that all of the stocks are recently produced. Use weighted average when assuming that new items are in stock and later. Use LIFO when assuming that the stock is the first item to be sold.

Perpetual method—journal—DR inventories (debit), CR cash or account payable

Periodic method—journal—DR purchases(expenses)(credit), CR cash or account payable

Write in the notes to the company’s financial statements: inventories are carried at the lower of cost and net realisable value. Cost is determined using standard cost and for work in progress includes an appropriate share of both variable and fixed costs. The company’s inventory method is not clearly stated in Fleetwood’s corporate annual report. However, according to the experience in real life, a company with construction, sales and rental equipment as its main business should have inventory of new products and old products at the same time. So Fleetwood’s inventory method should be weighted average. Net realisable value represents the estimated selling prices for the inventories less all estimated costs of completion and costs necessary to make the sale. I think the meaning of this sentence should be that the inventory should be calculated according to the lower value of cost or market value. When the market value is higher than the cost, the inventory value falls to the amount of market value. When the market value is lower than the cost, the inventory value is reduced to the amount of the cost value.

Inventories                                                        $
	2018	2017	2016
Raw materials & stores	11,869,000	11,241,000	8,832,000
work in progress	20,471,000	26,651,000	17,984,000
finished goods	27,685,000	25,319,000	22,475,000
	60,052,000	63,211,000	49,291,000

Fleetwood’s inventory in 2018 was $60,025,000, and the 2017 value of inventory was $63,211,000, in 2016 was $49,291,000. It can be concluded from Fleetwood’s annual report that in the past three years, the company’s inventory has been divided into three categories, Raw materials & stores, work in progress and finished goods. In the company’s inventory management, each of the property, plant and equipment of Fleetwood is deducted (if applicable) from any historical depreciation and impairment losses. In this concept, historical costs include expenditures that are directly attributable to the acquisition. Because the weighted average method is used to calculate inventory, the data is only relevant for one year.

From $49,291,000 in 2016 to $63,211,000 in 2017 and $60,025,000 in 2018, the amount of inventory products showed a trend in V-type. So the changes that affect these trends are my biggest concern.

With 2018 Fleetwood inventory at $60,025,000, this is a big number, which means that many of the corporation’s products have not yet been sold. It is a normal phenomenon for a company that sells building materials and buildings as its main business. However a large amount of inventory indicates that the company’s production scale during this year has exceeded the actual sales scale.

Although Fleetwood’s annual report did not use too much text to disclose inventory information, the amount gave me some obvious information. And the Inventories practices also changed. Starting in 2016, the inventory of raw materials & stores for three years was $8,832,000, $11,241,000, and $11,869,000. From 2016 to 2018, Fleetwood’s inventories in raw materials and stores have increased year by year. This may be related to the rising demand for construction. Although increasing raw material inventory can cope with urgent situations such as rising raw material prices, it will also consume a large amount of liquidity, which will have an impact on corporate capital turnover. At the same time, it will increase the cost of inventory, because the loss of raw materials and deterioration of the problem will also increase the amount of losses. The inventory of completed goods is similar to that of raw materials & stores, and is an upward trend. The reason for the rise is the same as for raw materials & stores. I want to focus on the inventory of work in progress. From 2016 to 2017, there has been a large increase in the inventory of work in the process, which is in line with the development trend of society. Because with the development of society, the demand for construction and accessories is definitely improving. Fleetwood has increased its inventory in this area to meet the growing demand for products. But from 2017 to 2018, the in-process work inventories fell by nearly $6,000,000, which is not in keeping with the trend of the times. But in Fleetwood’s report in 2018, I can find some reasons. In February 2018, Fleetwood sold its loss-making ute canopy and tray business, Flexiglass to Aeroklas Australia. Increasing inventory is in response to rising construction demand, which is in line with the company’s and society’s development trends. As the population grows, housing demand will increase year by year, and as consumption levels increase, more and more people demand a better living environment. Fleetwood’s increased inventory in 2016 to 2017 was also a manifestation of the company’s response to upcoming business needs. Although Fleetwood cancelled two loss-making projects in 2018, this led to a decline in inventory. Because the inventory of these two items was cancelled or all sold. The most intuitive impact of inventory increases on financial statements is an increase in assets and an increase in undistributed profits.

According to the annual report, the cost of inventory recognized as expenses for continuing operations during the year was $100.7 million. So the Inventories system is perpetual method. Calculate inventory using a weighted average method as I said above.

Fleetwood’s inventory is too high. This may be because Fleetwood’s sales forecast is not accurate. Because people’s hobbies are temperable, many factors can cause irregular buying tendencies, which leads to great uncertainty for general users and distributors. In addition, the communication with downstream enterprises is not smooth, and so on, it has increased the difficulty of sales forecasting. In the storage process, including the depreciation of the warehouse house, repair costs, insurance premiums and interest on the funds. Because it takes a certain amount of space to store inventory, it takes a certain amount of money to maintain and care for these spaces. Excessive inventory, the amount of liquidity used will also increase, and enterprises may also have difficulties in abortion due to this part of the funds. Fleetwood can improve inventory management. Inventory management can be broadly divided into two areas. One is to reduce inventory waste, and the other is to rationally arrange inventory. The waste of inventory is mainly concentrated on the prolonged inventory time leads to the outdated product backlog, the product repair caused by the loss of finished products and transport. The impact of more inventory is mainly reflected in the use of liquidity and increased costs. Therefore, if companies want to solve these problems, they need to conduct macro or micro analysis of the market, fully evaluate product requirements and technical standards, formulate production plans, and determine the quantity of inventory. Strengthen safety, reduce risk and reduce product friction or corrosion damage according to different product performance and material properties.

Here is income statement and balance sheet of Fleetwood in 2018

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Feelings and problems

When I finished my income statement, I suddenly had a sign. In the absence of a lot of income, I spent a lot of money at this period, but fortunately my income can guarantee my daily expenses. From my income information, excluding wage income, I still have an environmental income. This is a project from Brisbane government, people can get some money by sending plastic bottles that are not used in their homes to the designated recycling location. It is interesting because one aspect is people can earn some money and another aspect is that this project can protect environment. From my expenditure information, my expenses are mainly concentrated on food expenses and shopping expenses. This is not surprising, because almost everyone will spend a lot of money on meals and the purchase of ingredients. Monthly fixed network expenses are directly deducted from the account. And my least expensive expenditure is rent, which is about my phone card rental, because I don’t use the phone business very much, so I chose the cheapest amount.

When I made the form, I still don’t understand how the Profit/(Loss) for the period item is calculated. When I put all my expenses on the form, Loss for the period is automatically calculated, so I don’t need to personally add or subtract each item. Profit/(Loss) for the period means that the amount of the account is a loss or a profit during this time. When the profit is greater than the loss, Profit/(Loss) for the period is a positive number, and vice versa. But when I make the income statement, I need to add the same items in the journal. For example, the item consumption on the 7th and the item consumption on the 9th are the same item, so it needs to be added together and then reflected in the table. This is a relatively time consuming. My question is there a way to get them to add up automatically?

After this process of making the income statement, I realized that my income and expenditure information can be reflected so intuitively, which makes me feel great convenience and this is what I will continue and expand in the future, such as making my own balance sheet. This will be another interesting activity.

1. What is the chart of accounts so far, as illustrated in this example? What is your own chart of accounts? Is it like the one shown here?

So far, the chart of accounts includes income statement, balance sheet, cash flow, trial balance and some details explaining part of the three main items, such as profit details, loss details, investment details and so on. This time, only the income statement part and the journal related to the income statement are produced. My own chart of accounts is an income statement, similar to what is shown here.

• What level of detail could you change in the chart of accounts shown in this activity? Why might you want to do this?

I can change the information in the Category in my chart of accounts and Transaction Details items, such as the number by which the classification is based and the details of the transaction. Because this is related to my actual situation.

• How might you analyses your Income Statement? Has this exercise of recording your transactions through to the financial statements been useful for you? If so, why; if not, why not?

My income statement looks easier because there most are consumer information, only three income information. From my income information, excluding wage income, I still have an environmental income. This is a project from Brisbane government, people can get some money by sending plastic bottles that are not in their homes to the designated recycling location. It is interesting because one aspect is people can earn some money and another aspect is that this project can protect environment. From my expenditure information, my expenses are mainly concentrated on food expenses and shopping expenses. This is not surprising, because almost everyone will spend a lot of money on meals and the purchase of ingredients. Monthly fixed network expenses are directly deducted from the account. And my least expensive expenditure is rent, which is about my phone card rental, because I don’t use the phone business very much, so I chose the cheapest amount. It’s very useful for me to record my transaction history to financial statements, which makes it easier for me to see my monthly expenses and allows me to consciously limit spending on unnecessary expenses.

• Did you identify any transactions that you could apply the accrual basis of accounting to? Describe how treating a transaction under the accrual basis of accounting might differ from the cash basis of accounting.

Accrual accounting treatment means that rights and responsibilities have occurred, as long as they are recorded in the current period, and are not related to the receipt and payment of cash. For example, if a company borrows money from a bank and the company has an obligation to pay interest to the bank on a monthly basis, then you should include interest in financial expenses, and interest is generally paid on a quarterly basis, but it is included in the current profit and loss. The time for paying interest is irrelevant. This is the accrual basis for accounting based on the vesting period of rights and responsibilities. The cash basis of accounting means that cash or bank deposits are paid before accounting, otherwise it is not accounted for.

After seeing the company I needed to know, especially after the background and honor of the chairman of the board, Mr Campbell, I felt that he should lead Fleetwood to develop more quickly, but when I saw the Fleetwood annual report in 2018, I There is a question as to why the company will lose $13,289,000. The total income in 2018 was only $267,049,000, and the amount of loss was equivalent to 5% of total income. This is a relatively rare thing for a listed company. Fleetwood’s main income is concentrated on the sale of goods, construction and rental equipment, which is the same as the income of most construction companies. According to the annual report, over the last four years, Fleetwood’s executive team have been working on an array of initiatives designed to restore your company to solid profitability with a strong balance sheet. Specific measures include selling the loss-making business to Aeroklas Australia, acquiring a high-tech system in Sydney and a Melbourne-based company. These projects are all conducive to Fleetwood’s stable income and reduced losses. In addition to human resources, inventory is an important factor in construction companies. Inventories are carried at the lower of cost and net realisable value. Cost is determined using standard cost and net realisable value represents the estimated selling prices for the inventories less all estimated costs of completion and costs necessary to make the sale. This means that the company’s inventory is not calculated at the actual price, but at the actual price minus the value of the loss. Fleetwood’s inventory includes raw materials, ongoing work, and completed goods. In addition, I saw goodwill in the form of income, I don’t understand what goodwill represents? It means that this virtual thing of honor is still an entity. How does goodwill generate funds?  As a company with decoration and construction as its main business, whether materials meet the standards or not has an impact on the environment has always been the focus of attention. According to Fleetwood’s company charter, everything done by Fleetwood minimizes the impact on the environment. Use the highest quality sustainable materials and design the most advanced factories to save energy. The company also recycles as much as possible.

Background

Fleetwood was Established in 1964 and listed on the Australian Securities Exchange in 1987, Fleetwood has become an industry leader in each of its markets: Modular Accommodation, Village Operations, Parts and Services in Australia and New Zealand.

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