ACCT 320 TUTORIAL_Inventory Cost Flow

ACCT 320 TUTORIAL_Inventory Cost Flow - ACCT 320 TUTORIAL...

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ACCT 320 TUTORIAL INVENTORY COST FLOW ASSUMPTIONS Overview: Inventory figures can be updated in two different ways. The first is a periodic inventory system. Periodic is taken after a certain period of time and a purchases account must be maintained to keep track of purchases made in the period. The second is the perpetual inventory system. This allows a company to update their inventory books as they are made. The company then is able to know exactly how much of a product is in inventory. SPECIFIC IDENTIFICATION: Specific identification is a cost flow method that matches a sale with the specific cost of the item sold. It requires each item in inventory to have a unique identification number so that actual costs can be determined (e.g. a vehicle with a particular Vehicle Identification Number (VIN)). This method is only practical when handling a relatively small number of costly, easily distinguishable items. Example: The Lawrence Toyota dealership sells a new Highlander for a retail price of $35,000. That particular vehicle cost the dealer $33,000 to acquire. The $35,000 revenue from this sale is matched with the $33,000 invoice price on the dealership’s income statement. Under specific identification, the cost flow matches the physical flow of goods. AVERAGE COST: This cost flow method calculates the cost of each item in inventory by taking the average cost of all the inventory items on hand. To calculate the weighted average cost, the value of goods available for sale is divided by the total number of units in inventory. a. Either weighted average (periodic) or moving average (perpetual)
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ACCT 320 TUTORIAL_Inventory Cost Flow - ACCT 320 TUTORIAL...

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