Reporting and Analyzing Inventories

2. Reporting and Analyzing Inventories

3. 6 • Reporting and analyzing Inventories Chapter Inventory Valuation Method

4. Inventory Valuation Method 2 First in First Out (FIFO)

5. Inventory Valuation method First In First Out (FIFO) method assumes that the items are sold in the chronological order of their acquisition.

6. Inventory Valuation method • The cost of First In inventory items are charged to Cost of Goods sold (COGS) when goods are sold. • The cost of the newest inventory items remain in ending inventory. • COGS and ending Inventory costs are same under both the approaches periodical and perpetual.

7. Inventory Valuation method Date Purchases Cost of Goods sold Inventory Balance Total number of inventory units purchased = 20 units (5+15) Total $ value of Cost of Purchase = $ 1150 (250+900) Total $ value of ending Inventory= $ 1150 (250+900)

8. Inventory Valuation method Date Purchases Cost of Goods sold Inventory Balance Cost of goods sold Inventory Value 730 Total $ value of Cost of goods sold= $ 750 (150+600) Total $ (Cost of purchase – Cost of goods sold) = $ 420 (1150-730) First In moves First Out=> 5 -> 8

9. Inventory Valuation method Date Purchases Cost of Goods sold Inventory Balance Cost of purchase = $ 1980 (250+900+455+375) Cost of Goods sold = $ 730 (250+480) Total $ value of Cost of goods sold= $ 730 (250+480) Total $ value of ending Inventory(Cost of purchase – Cost of goods sold) = $ 1250 (1980-730)

10. Inventory Valuation method Date Purchases Cost of Goods sold Inventory Balance Cost of purchase = $ 1980 (250+900+455+375) Cost of Goods sold = $1605 (250+480+420+455)

11. Inventory Valuation Cost of Goods sold Inventory Balance Date Income Statement Income Statement Cost of goods sold Balance Sheet Value of Inventory

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