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UA ACCT 200 - Inventory and COGS

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ACCT 200 1st Edition Lecture 12 Outline of Last Lecture I. Review/ExamplesII. E 5-15III. E 5-17IV. E 5-18V. Important NotesOutline of Current Lecture I. Miscellaneous NotesII. BE 6-3III. FIFO, LIFO, Weighted-Average CostIV. BE 6-4, 6-5, 6-6, 6-8V. Inventory PurchasesVI. Sales Journal EntryCurrent LectureCost of goods sold – only expense that doesn’t have the word expenseWalmart buys pencils for $.80, sells for $2 - $.8 is cost of goods soldManufacturing companies make what they sellSpecific identification – won’t have to do calculations; just know definitionBE 6-3Begin inventory 7000Purchases during year 22,000Remaining inventory 9000Cost of goods sold (COGS): (7000+22,000) – 9000=20,000 (expense)FIFO – best methodLIFO – good for tax purposes to save money; 10-15% of companies use LIFO; isn’t allow internationallyWeighted-Average Cost – simplestBE 6-4 (FIFO), 6-5 (LIFO), 6-6 (Weighted-Average Cost)Units $/unit totalJan 1 begin inventory 50 72 3600May 5 purchase 200 75 15,000Nov 3 purchase 100 80 8000Total: 350 n/a 26,000Sell 320 (30 left)BE 6-4 (FIFO)Units $/unit COGS end inventoryJan 1 50 72 3600May 5 200 75 15,000Nov 3 70 80 5600Remaining: 30 80 2400Total: 24,200 (sold)+ 2400 (unsold)=26,600BE 6-5 (LIFO)Units $/unit COGS end inventoryJan 1 30 72 216020 72 1440May 5 200 75 15,000Nov 3 100 80 8000Remaining: 24,440 (sold)+2160 (unsold)=26,600BE 6-6 (Weighted Average Cost)Total cost of goods available/total units=26,600/350=76End inventory units 30*76=2280 value of inventoryUnits sold 320*76=24,320 value of COGSBE 6-8If costs are risingLIFO – lowest end inventory, highest COGS, lowest net incomeFIFO – highest end inventory, lowest COGS, highest net incomeWeighted Average Cost – in the middle for allPerpetual and periodic inventory systems – can use a combo of both (Best Buy); we will focus onperpetual methodPurchase transactions – company is buying inventory to resell later to customersBuy inventory on acct terms 2/10 net 30 $30003/1 Inventory 3000Acct payable 3000Look at purchase and $200 is damaged so we send it back3/2 Acct payable 200Inventory 200Pay balance due and take discount (balance due=3000-200=2800)2800*.02=56 off amount due3/8 Acct payable 2800Cash 2744Inventory 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 inventory3/2 Inventory (amount of freight)Cash/acct payable (amount of freight/shipping costs)FOB shipping point – ownership transfers once item is shippedFOB 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 customersSell $5000 worth of items to Jones company, cost of inventory was 2200, terms 2/10 net 30This transaction has 2 parts: sales and remove inventory/COGS3/1 Acct receivable 5000Revenue 5000Cost of Goods Sold 2200Inventory 22003/8 customer pays and takes discount offered (5000*.02=100 off balance owed)Cash 4900Sales Discount 100Acct receivable


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