Inventory Flashcards
To ensure students understand the basics of recordkeeping for accounting and the differences between the periodic and perpetual method. Students will also be familiarized with the Inventory Valuation methods permitted under GAAP. (LIFO, FIFO, Specific Identification, Weighted Average)
What is the periodic inventory system?
Under the periodic inventory system, inventory is counted at certain times throughout the period. When thinking of this method, it is best to think of a small mom and pop shop that performs a physical count of inventory on a periodic basis, hence the name.
What is the last in, last out method?
Under LIFO, goods that were purchased last are sold first, therefore the costs of the goods purchased most recently are the first to be recognized in determining cost of goods sold. The cost of ending inventory reflects the costs of goods purchased in earlier periods.
What is the perpetual inventory system?
Under the perpetual inventory system, the inventory count is continually updated, therefore, everytime the company purchases or sells inventory, it is recorded on the books. When thinking of this method, think of large retailers like Walmart, Costco, B.J.’s.
What is the first in, first out method?
Under FIFO, goods that were on hand first are sold first, therefore the costs of the earliest goods purchased are the first to be recognized in determining cost of goods sold. The cost of ending inventory reflects the costs of the goods purchased most recently.
How is Weighted Average Cost Per Unit calculated under a weighted average inventory system?
Cost of Goods Available for Sale / Total Units = Weighted Average Cost Per Unit
