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

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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
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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...
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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.

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

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