Chapter 6
How is inventory stated in the financial statements?
• Purchased 10,000 units of inventory at $10.00 each over the course of the
year. Thus, $100,000 of inventory purchased.
• At end of year, 1,000 units remain.
• Sell units for $15 each
How much inventory would be shown on the balance sheet at the end of the year?
Also a new company this year.
Purchases of inventory as follows:
Number of Cost per Total
units unit inventory
January 800 $9.00 $7,200.00
March 1,200 $9.30 $11,160.00
May 3,000 $9.70 $29,100.00
July 2,000 $10.25 $20,500.00
September 1,400 $10.60 $14,840.00
November 1,600 $10.75 $17,200.00
Total 10,000 $100,000.00
At end of year, 1,000 units remain.
How much inventory would be shown on
the balance sheet at the end of the year?
©2018 Erik Slayter. All rights reserved. Please do not scan, duplicate, or otherwise make available to the public.
FIFO (First In First Out)
Date Event Journal Entry COGS Ending Inventory
Existing inventory: 30 units at a
1-Apr
cost of $100 each
Purchase 40 units at a cost of $110
8-Apr
each
15-Apr Sell 50 units for $200 each
Purchase 80 units at a cost of $120
23-Apr
each
28-Apr Sell 35 units for $200 each
©2018 Erik Slayter. All rights reserved. Please do not scan, duplicate, or otherwise make available to the public.
FIFO: Alternative method/shortcut approach
©2018 Erik Slayter. All rights reserved. Please do not scan, duplicate, or otherwise make available to the public.
LIFO (Last In First Out)
Date Event Journal Entry COGS Ending Inventory
Existing inventory: 30 units at a
1-Apr
cost of $100 each
Purchase 40 units at a cost of $110
8-Apr
each
15-Apr Sell 50 units for $200 each
Purchase 80 units at a cost of $120
23-Apr
each
28-Apr Sell 35 units for $200 each
©2018 Erik Slayter. All rights reserved. Please do not scan, duplicate, or otherwise make available to the public.
LIFO: Alternative method/shortcut approach
©2018 Erik Slayter. All rights reserved. Please do not scan, duplicate, or otherwise make available to the public.
Average Cost (Weighted)
Date Event Journal Entry COGS Ending Inventory
Existing inventory: 30 units at a
1-Apr
cost of $100 each
Purchase 40 units at a cost of $110
8-Apr
each
15-Apr Sell 50 units for $200 each
Purchase 80 units at a cost of $120
23-Apr
each
28-Apr Sell 35 units for $200 each
©2018 Erik Slayter. All rights reserved. Please do not scan, duplicate, or otherwise make available to the public.
Average Cost: Alternative method/shortcut approach
©2018 Erik Slayter. All rights reserved. Please do not scan, duplicate, or otherwise make available to the public.
FIFO LIFO Average Cost
Sales
- COGS
= Gross Margin
Summarize methods/cost behaviors
Advantages/Disadvantages of each costing method
Things to keep in mind when working on this material:
How is costing method and physical flow of inventory correlated?
©2018 Erik Slayter. All rights reserved. Please do not scan, duplicate, or otherwise make available to the public.
