Inventory Cost Determination - FIFO

Question 1

FIRST-IN, FIRST OUT (FIFO)

Answer 1

• FIFO rule is applied at the time of each sale
• FIFO assumes earliest goods are sold first
  Often reflects the actual physical flow of merchandise

Question 2

Costing

Answer 2

• Costs of oldest goods purchased are first to be recognized as Cost of Goods Sold
• Costs of most recent goods purchased are recognized as the ending inventory

Question 3

perpetual vs periodic

Answer 3

• Each system uses the same process to calculate the cost of goods sold.
• the journal entry Perpetual records the COGS at the time of the sale and Periodic doesn’t

Question 4

FIFO perpetual (things to remember)

Answer 4

• FIFO assumes that the earliest (oldest) goods purchased are the first ones to be sold.
• Under a perpetual inventory system, the seller of the goods must record two entries:
• the first entry debits cash/AR and credits revenue for the goods sale price.
• The second entry debits COGS and credits merchandise inventory for the goods cost price

Question 5

Cost of goods available for sale

Answer 5

Beginning inventory + net purchases

Question 6

the number of units of ending inventory

Answer 6

units of purchases - units of sales

Question 7

cost of ending inventory

Answer 7

cogs available for sale/units of purchases = average cost per unit
average cost per unit x units of ending inventory = ending inventory

Question 8

cost of goods sold

Answer 8

cost of goods available for sale - ending inventory

Question 9

gross profit

Answer 9

total sales - cost of goods sold