Inventories and the Cost of Goods Sold

as goods are sold

The Flow of Inventory Costs

In a perpetual inventory system, inventory entries parallel the flow of

When identical units of inventory have different unit costs, a question

Inventory Subsidiary Ledger

A separate subsidiary account is maintained for each item

The Bike Company (TBC)

Data for an Illustration

On August 14, TBC sold 20 bikes for $130 each.
Of

A similar entry is made after each sale.

Specific Identification

Additional purchases were made on August 17 and 28.

Specific

Balance Sheet
Inventory = $1,395

Specific Identification

Income Statement
COGS = $4,595

Average-Cost Method

The average cost per unit must be computed prior to

Average-Cost Method

Additional purchases were made on August 17 and August 28.

Income Statement
COGS = $4,622

Balance Sheet
Inventory = $1,368

Average-Cost Method

On August 14, TBC sold 20 bikes for $130 each.

First-In,

Additional purchases were made on Aug. 17 and Aug. 28.
On August

First-In, First-Out Method (FIFO)

Balance Sheet
Inventory = $1,420

Income Statement
COGS = $4,570

On August 14, TBC sold 20 bikes for
$130 each.

Last-In,

Last-In, First-Out Method (LIFO)

Additional purchases were made on Aug. 17 and

Balance Sheet
Inventory = $1,260

Last-In, First-Out Method (LIFO)

Income Statement
COGS = $4,730

Once a company has adopted a particular accounting method, it should

The primary reason for taking a physical inventory is to adjust

LCM and Other Write-Downs of Inventory

LCM and Other Write-Downs of Inventory

Year End

A sale should be recorded when title to the merchandise

In a periodic inventory system, inventory entries are as follows.

Note that

In a periodic inventory system, inventory entries are as follows.

Periodic Inventory

Information for the Following Inventory Examples

Specific Identification

Avg. Cost $9,725 ÷ 1,800 = $5.40278

Average-Cost Method

Ending Inventory
Avg. Cost

Remember: Start with the 11/29 purchase and then add other purchases

Now, let’s complete the table.

First-In, First-Out Method (FIFO)

Now, we have allocated

Completing the table summarizes the computations just made.

First-In, First-Out Method (FIFO)

Remember: Start with beginning inventory and then add other purchases until

Last-In, First-Out Method (LIFO)

Now, we have allocated the cost to all

Completing the table summarizes the computations just made.

Last-In, First-Out Method (LIFO)

An error in ending inventory in a year will result in

The Gross Profit Method

Determine cost of goods available for sale.
Estimate cost

The Gross Profit Method

In March of 2009, Matrix Company’s inventory was

The Gross Profit Method

Step 1

Step 2

Step 3

The Retail Method

The retail method of estimating inventory requires that management

The Retail Method

Matrix would follow the steps below to estimate their

(Beginning Inventory + Ending Inventory) ÷ 2

Financial Analysis

Financial Analysis

(Beginning Receivables + Ending Receivables) ÷ 2