ACC 100 Chapter Notes - Chapter 6: The Beer Store, Cash Register
13 Jun 2018
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ACC 100- Chapter 6
Inventory Costing & Controls
Three inventory costing methods
1. Specific Identification
2. Average Cost
3. First-in, First-out (FIFO)
Specific Identification
- the cost of every single item of inventory is calculated and the item is tagged with the cost
- when an item is sold, the cost of that specific item is moved from the Inventory account (an
asset decreases) to Cost of Goods Sold (an expense because it was used to generate revenue)
- expensive and time consuming
- used for businesses that sell a small number of expensive products which can be easily
identified, either because they are unique (original art), have serial numbers (cars) or special
markings (diamonds)
Date
Colour
Cost
February 2
Red
$10,000
February 12
Blue
$11,000
February 27
Green
$12,000
Total
-
$33,000
Average Cost
- you average out the costs of each inventory you buy
- average cost changes each time you buy new inventory
Purchases
Average cost
Red car
$10,000
Blue car
$11,000
Total cost of 2 cars
$21,000
Average cost per car*
$10,500
Purchases
Average cost
Red car
$10,000
Blue car
$11,000
Green car
$12,000
Total cost of 3 cars
$33,000
Average cost per car**
$11,000
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find more resources at oneclass.com
Document Summary
Three inventory costing methods: specific identification, average cost, first-in, first-out (fifo) The cost of every single item of inventory is calculated and the item is tagged with the cost. When an item is sold, the cost of that specific item is moved from the inventory account (an asset decreases) to cost of goods sold (an expense because it was used to generate revenue) Used for businesses that sell a small number of expensive products which can be easily identified, either because they are unique (original art), have serial numbers (cars) or special markings (diamonds) You average out the costs of each inventory you buy. Average cost changes each time you buy new inventory. So, when you are filling out the accounting formula, the inventory would increase by the average cost, not the cost of the specific car that you sold. Assumes that the oldest inventory is always sold first and the newest inventory is still in inventory (on the shelf)
