Give TWO examples of methods of inventory accounting (NOT FROM GOOGLE, PLEASE, YOUR OWN EXAMPLES)
Give TWO examples of methods of inventory accounting
(NOT FROM GOOGLE, PLEASE, YOUR OWN EXAMPLES)
There are various methods to account for inventory, out of which commonly used two methods are discussed as follows
First in first out (FIFO method):
Under this method, those inventories which are purchased first is used first for the production process or for sales so the cost of goods sold includes goods that are bought first, and ending inventory includes goods that are purchased in the latter part of the year, method of accounting is explained with the following example
Bought goods on 1st January of 200 units at 10
Bought goods on 10th January of 100 units at 11
Sold goods on 15th January of 150 unit at 15
As per the FIFO method, goods that are purchased first are used first so sales will be made out of purchases made on 1st January, hence 150 units will be sold from 200 units bought.
Cost of goods sold = 150 units * 10 => 1,500
Ending inventory units will be the units which are purchased in the later part hence it includes units unsold on the purchases made on 1st January and goods bought on 10th January.
Value of ending units = 100 * 11 + 50 * 10 => 1,600
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