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Inventory
Inventory refers to the stock or goods which will be sold in the near future and thus is an asset for the company. It comprises of the raw materials which are yet to be processed, the stock which is still going through the process of production and it also includes completed products that are ready for sale. Thus inventory is the biggest and the important source of income and profit for the business.
Perpetual Inventory System
In perpetual inventory system there is a continuous recording of transactions as and when they take place that is purchase and sale transactions are recorded whenever they occur.
Cost of Goods Available for Sale
It basically includes the cost of inventory which is ready for sale within an accounting period. It mainly includes the cost of beginning inventory as well as the stock purchased in that year and the production within that period (if any).
Cost of Goods Sold
Cost of goods sold is the total expenses or the cost incurred by the business during the process of manufacturing of goods and is directly related to the production. It generally includes the cost of raw material, labor and other
Gross Profit
The profit made after subtracting or debiting the costs related to the goods sold from the total revenue earned or made through sales in a fiscal year is the gross profit.
First in First out
In case of first in, first out method, also known as FIFO method, the inventory which was bought first will also be the first one to be taken out.
Last in First out
In case of last in, first out, also known as LIFO method, the inventory which was bought in the last will be taken out first.
Weighted Average Cost Method
In this method the weighted average cost is evaluated after any purchases have been made and transactions are recorded as when purchase or sales take place.
Specific Identification Method
Under this method, there is a continuous tracking of the inventory and the inventory cost at the time of purchase on the basis of unique identity which thus helps in the valuation of the ending inventory as well as the cost of goods sold. This method is used generally when the company is involved in limited expensive goods which are easily identifiable.
To compute: 1. Cost of goods available for sale and number of units available for sale.
2. Number of units in ending inventory.
3. Cost of ending inventory under the following methods:
- (a) FIFO
(b)LIFO
(c) Weighted average
(d) Specific identification
Given info,
| Date | Particulars | Units acquired | Cost per unit ($) | Units sold | Retail price per unit ($) |
| Apr 1 | Beginning inventory | 20 | 3,000 | ||
| Apr 6 | Purchase | 30 | 3,500 | ||
| Apr 9 | Sales | 35 | 12,000 | ||
| Apr 17 | Purchase | 5 | 4,500 | ||
| Apr 25 | Purchase | 10 | 4,800 | ||
| Apr 30 | Sales | 25 | 14,000 | ||
| Total | 65 | 60 |
The ending inventory consists of 5 units from April 17.
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Chapter 5 Solutions
FINANCIAL AND MANAGERIAL ACCOUNTING
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