Inventories First-In, First-Out(FIFO) Oldest Costs of Costs Goods Sold Recent Ending Costs Inventory
Costs of Goods Sold Ending Inventory Oldest Costs Recent Costs Inventories First-In, First-Out (FIFO)
nventories Average Cost When a unit is sold the average cost of each unit in inventory is assigned to cost of goods sold Cost of Units Goods available on Available for the date of Sale sale
When a unit is sold, the average cost of each unit in inventory is assigned to cost of goods sold. Cost of Goods Available for Sale Units available on the date of sale ÷ Inventories Average Cost
Inventories Advantages of Each Costing Method Most companies take a physical count of inventory at least once each year. When the physical count does not match the Merchandise Inventory account, an adjustment must be made
➢Most companies take a physical count of inventory at least once each year. ➢When the physical count does not match the Merchandise Inventory account, an adjustment must be made. Inventories Advantages of Each Costing Method
Inventories Illustration of Costing Methods Inventory on January 1, Year 2 10@ $400 4,000 First purchase in Year 2 20@$50010,000 Second purchase in Year 2 10@$500 5,000 Third purchase in Year 2 20@$60012,000 Total available for sale 60 desks$31,000 Note:55 desks are sold in year 2
Inventory on January 1, Year 2 10 @ $400 $ 4,000 First purchase in Year 2 20 @ $500 10,000 Second purchase in Year 2 10 @ $500 5,000 Third purchase in Year 2 20 @ $600 12,000 Total available for sale 60 desks $31,000 Note: 55 desks are sold in Year 2 Inventories Illustration of Costing Methods
Inventories Illustration of Costing Methods Beginning Net Cost of Ending Inventory Purchases= Goods Sold Inventory FIFO 4,000 +$27,000 $28,000 +$3,000 LIFO 4,000 +$27,000 $29,000 $2,000 Average $4, 000 +$27,000=$28,416.5 $2,5835 Assume sales of $35, 000 for the period-then gross profit under each method Sales Cost of Goods sold= Gross Profit FIFO $35,000 28.000 $7000 LIFO $35,000-29,000 $6,000 Average $35,000 28,416.5 $6,583.5
Beginning Net Cost of Ending Inventory + Purchases = Goods Sold + Inventory FIFO $4,000 + $27,000 = $28,000 + $3,000 LIFO $4,000 + $27,000 = $29,000 + $2,000 Average $4,000 + $27,000 = $28,416.5 + $2,583.5 Assume sales of $35,000 for the period—then gross profit under each method is: Sales – Cost of Goods Sold = Gross Profit FIFO $35,000 -- 28,000 = $7000 LIFO $35,000 -- 29,000 = $6,000 Average $35,000 -- 28,416.5 = $6,583.5 Inventories Illustration of Costing Methods