Kế toán, kiểm toán - Chapter 6: Inventories

1 Chapter 6 Inventories Appendix 6A: Inventory costing methods (Periodic inventory system) 2 1. Determine the cost of goods sold and ending inventory under the periodic inventory system for each of the four inventory costing methods: - Specific identification - First-in, first-out (FIFO) - Last-in, first-out (LIFO) - Weighted average Learning objective 3 Periodic inventory system ▪These are calculated at the end of the period using the formula to calculate cost of goods sold ▪Recall that the periodic inventory system does not continuously keep track of: – Ending inventory – Cost of goods sold 4 Formula to calculate cost of goods sold Beginning inventory + Net purchases = Cost of inventory available for sale - Ending inventory = Cost of goods sold Steps to calculate COGS and ending inventory: 1.Calculate cost of inventory available for sale for the period 2.Taking inventory to determine the number of units on hand 3.Calculate ending inventory using an inventory costing method 4.Calculate cost of goods sold using the value calculated for ending inventory Periodic inventory system 5 ▪We now illustrate how to calculate the cost of goods sold and ending inventory under the periodic inventory system for each of the four inventory costing methods using the following data: Illustration of inventory costing methods 6 Purchases Sales Date Description Units Unit cost Total cost Units Selling price Sales revenues Nov. 1 Beginning inventory 50 x $1 = $50 7 Purchases 75 x $2 = $150 17 Purchases 15 x $3 = $45 27 Sales ? x $5 = $300 ▪Calculated by taking beginning inventory and adding the purchases for the period ▪ Inventory available for sale = 140 units worth $245 Step 1: Calculate inventory available for sale 7 Purchases Sales Date Description Units Unit cost Total cost Units Selling price Sales revenues Nov. 1 Beginning inventory 50 x $1 = $50 7 Purchases 75 x $2 = $150 17 Purchases 15 x $3 = $45 27 Sales ? x $5 = $300 30 Totals 140 units $245 ▪An inventory count revealed 80 units remaining on hand at the end of the accounting period ▪Therefore 140 – 80 = 60 units must have been sold during the accounting period ▪But what are the costs assigned to the 80 units of ending inventory and 60 units sold? ▪We now calculate ending inventory and cot of goods sold under each inventory costing method in the periodic system Step 2: Taking inventory 8 ▪The inventory count specifically identified the following number of units at each unit cost ▪Ending inventory = $155 Step 3: Specific identification - periodic 9 Inventory balance specific identification Units Unit cost Total cost 15 $1 $15 55 $2 $110 10 $3 $30 80 units $155 ▪Use the $155 balance of ending inventory to calculate cost of goods sold ▪Cost of goods sold = $90 Step 4: Specific identification - periodic 10 Cost of goods sold – specific identification Units $ Cost of inventory available for sale 140 245 - Ending inventory 80 155 = Cost of goods sold 60 90 ▪FIFO assumes the cost of the 80 units in ending inventory to be that of the most recent purchases ▪Ending inventory = $175 Step 3: FIFO - periodic 11 Inventory balance FIFO Units Unit cost Total cost 65 $2 $130 15 $3 $45 80 units $175 ▪Use the $175 balance of ending inventory to calculate cost of goods sold ▪Cost of goods sold = $70 Step 4: FIFO - periodic 12 Cost of goods sold – FIFO Units $ Cost of inventory available for sale 140 245 - Ending inventory 80 175 = Cost of goods sold 60 70 ▪LIFO assumes the cost of the 80 units in ending inventory to be that of the earliest purchases ▪Ending inventory = $110 Step 3: LIFO - periodic 13 Inventory balance LIFO Units Unit cost Total cost 50 $1 $50 30 $2 $60 80 units $110 ▪Use the $110 balance of ending inventory to calculate cost of goods sold ▪Cost of goods sold = $135 Step 4: LIFO - periodic 14 Cost of goods sold – LIFO Units $ Cost of inventory available for sale 140 245 - Ending inventory 80 110 = Cost of goods sold 60 135 ▪First we need to calculate a weighted average cost of the units of inventory available for sale throughout the period Step 3: Weighted average - periodic 15 Weighted average cost = Total cost of goods available for sale Total number of units available for sale = $245 140 units = $1.75 per unit ▪We use the weighed average cost multiplied by the number of units to calculate ending inventory ▪Ending inventory = $140 Step 3: Weighted average - periodic 16 Inventory balance Weighted average Units x Weighed average cost = Total cost 80 x $1.75 = $140 ▪Use the $140 balance of ending inventory to calculate cost of goods sold ▪Cost of goods sold = $105 ▪Check: 60 units x $1.75 = $105  Step 4: Weighted average - periodic 17 Cost of goods sold – Weighted average Units $ Cost of inventory available for sale 140 245 - Ending inventory 80 140 = Cost of goods sold 60 105