ACCT 200 1st Edition Lecture 12 Outline of Last Lecture I Review Examples II E 5 15 III E 5 17 IV E 5 18 V Important Notes Outline of Current Lecture I Miscellaneous Notes II BE 6 3 III FIFO LIFO Weighted Average Cost IV BE 6 4 6 5 6 6 6 8 V Inventory Purchases VI Sales Journal Entry Current Lecture Cost of goods sold only expense that doesn t have the word expense Walmart buys pencils for 80 sells for 2 8 is cost of goods sold Manufacturing companies make what they sell Specific identification won t have to do calculations just know definition BE 6 3 Begin inventory 7000 Purchases during year 22 000 Remaining inventory 9000 Cost of goods sold COGS 7000 22 000 9000 20 000 expense FIFO best method LIFO good for tax purposes to save money 10 15 of companies use LIFO isn t allow internationally Weighted Average Cost simplest BE 6 4 FIFO 6 5 LIFO 6 6 Weighted Average Cost Units unit total Jan 1 begin inventory 50 72 3600 May 5 purchase 200 75 15 000 Nov 3 purchase 100 80 8000 Total 350 n a 26 000 Sell 320 30 left BE 6 4 FIFO Units unit COGS Jan 1 50 72 3600 May 5 200 75 15 000 Nov 3 70 80 5600 Remaining 30 80 Total end inventory 2400 24 200 sold 2400 unsold 26 600 BE 6 5 LIFO Units unit 30 72 20 72 1440 May 5 200 75 15 000 Nov 3 100 80 8000 Jan 1 Remaining COGS end inventory 2160 24 440 sold 2160 unsold 26 600 BE 6 6 Weighted Average Cost Total cost of goods available total units 26 600 350 76 End inventory units 30 76 2280 value of inventory Units sold 320 76 24 320 value of COGS BE 6 8 If costs are rising LIFO lowest end inventory highest COGS lowest net income FIFO highest end inventory lowest COGS highest net income Weighted Average Cost in the middle for all Perpetual and periodic inventory systems can use a combo of both Best Buy we will focus on perpetual method Purchase transactions company is buying inventory to resell later to customers Buy inventory on acct terms 2 10 net 30 3000 3 1 Inventory 3000 Acct payable 3000 Look at purchase and 200 is damaged so we send it back 3 2 Acct payable 200 Inventory 200 Pay balance due and take discount balance due 3000 200 2800 2800 02 56 off amount due 3 8 Acct payable 2800 Cash 2744 Inventory 56 Why credit inventory for discount Inventory account before entry has 2800 in it pay 2744 for inventory so we want inventory account to match what we paid so we have to reduce inventory by 56 to get it to match Last piece of purchase side freight charges to get the purchase this will increase the cost of the inventory 3 2 Inventory amount of freight Cash acct payable amount of freight shipping costs FOB shipping point ownership transfers once item is shipped FOB destination ownership transfers once item is received by client important if an item is lost or damaged during shipping to determine who is liable responsible Sales side sold to customers Sell 5000 worth of items to Jones company cost of inventory was 2200 terms 2 10 net 30 This transaction has 2 parts sales and remove inventory COGS 3 1 Acct receivable 5000 Revenue Cost of Goods Sold 5000 2200 Inventory 3 8 2200 customer pays and takes discount offered 5000 02 100 off balance owed Cash 4900 Sales Discount 100 Acct receivable 5000
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