ACC 113 Lecture Notes - Lecture 7: Fifo (Computing And Electronics), Perpetual Inventory, Income Statement
19 Dec 2020
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Document Summary
Cost methods assume a flow of costs that may not be the same as the actual flow of goods. Fifo (first-in, first-out), cost of first item purchased is cost of first item sold. Average: cost determined using a moving (weighted) average of the cost of the items purchased. Merchandise inventory is recorded at most recent (current) cost in the current assets section of statement of financial position. Cost of goods sold is recorded as an expense at oldest inventory cost on income statement. Ending inventory and cost of goods sold under fifo are the same for periodic and perpetual inventory systems. Used when physical flow of inventory cannot specifically be measured. Under a perpetual inventory system, a new weighted (called moving) average is calculated after each purchase: use to record cost of goods sold and ending inventory. Errors can occur in accounting for inventory: incorrect counting or costing, transfer of title not recognized.
