# chap 7 - uniform prices IV. Example A. A company buys a box...

This preview shows pages 1–2. Sign up to view the full content.

III. Inventory cost flow assumptions A. Types 1. FIFO: assumes costs flow in the order incurred (oldest = first sold) a) Oldest pieces of inventory appear on the income statement b) Most recent pieces of inventory appear on the balance sheet 2. LIFO: assumes costs flow in the reverse order incurred (newest = first sold) a) Oldest pieces of inventory appear on the balance sheet b) Most recent pieces of inventory appear on the income statement 3. Weighted average: assumes cost flow at an average of the costs available a) Ex: gas B. Why necessary 1. Merchants buy units of the same products at different prices 2. Must determine COGS and the composition of the inventory despite the lack of

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: uniform prices IV. Example A. A company buys a box of paper clips for \$70 on May 6, a box for \$65 on May 3 and a box for \$45 on May 1. One box is sold. 1. FIFO a) Debit COGS \$45 b) Credit MI \$45 2. LIFO a) Debit COGS \$70 b) Credit MI \$45 3. Weighted average a) Must find average of all inventory * (70 + 65 + 45)/ 3 = \$60 b) Debit COGS \$60 c) Credit MI \$60 V. Specific Identification A. When units are sold, the specific cost of the unit sold is added to COGS B. Monitors the actual flow of inventory C. Not practical for large quantity inventories but is used for expensive, customizable or extremely large pieces of inventory 1. Ex: jewelry, furniture...
View Full Document

## This note was uploaded on 02/09/2012 for the course ACCT 1310 taught by Professor Staff during the Fall '10 term at Texas State.

### Page1 / 2

chap 7 - uniform prices IV. Example A. A company buys a box...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online