# ACCT101: PRINCIPLES OF ACCOUNTING I

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```					                ACCT101: PRINCIPLES OF ACCOUNTING I
CHAPTER 6: MERCHANDISE INVENTORY

Inventory Cost Methods (Perpetual System Only):
1. Specific Identification
2. First In, First Out (FIFO)
3. Last In, First Out (LIFO)
4. Moving Average

January 1          Beginning Inventory         100 units @ \$10
January 10         Sold @\$40/unit              90 units
March 14           Purchased                   250 units @ \$15
March 15           Sold @ \$40/unit             140 units
July 30            Purchased                   400 units @ \$20
October 3          Purchased                   600 units @ \$25
October 26         Sold @ \$40/unit             300 units
November 25        Sold @ \$40/unit             450 units

In looking at the information given above, how many units were available for sale
during the year? 100+250+400+600 = 1,350 units

How many units were sold during the year? 90+140+300+450 = 980 units

Therefore, how many units are in the ending inventory? 1,350-980 = 370 units
Inventory [based on First In, First Out (FIFO)]
(Note: the vertical line down the middle of this T acct is missing! Put it in!)
-------------------------------------------↓-----------------------------------------------
1-1:           100 @ \$10 = \$1,000
1-10:                                             90 @ \$ 10 = \$900____________
Balance:         10 @ \$10 = \$100
3-14           250 @ \$15 = \$3,750
3-15                                                10 @ \$10 = \$100
130 @ \$15 = \$1,950___________
Balance:        120 @ \$15 = \$1,800
7-30:           400 @ \$20 = \$8,000
10-3:           600 @ \$25 = \$15,000
10-26:                                             120 @ \$15 = \$1,800
180 @ \$20 = \$3,600___________
Balance:        220 @ \$20 = \$4,400
600 @ \$25 = \$15,000
11-25:                                             220 @ \$20 = \$4,400
230 @ \$25 = \$5,750___________
Balance:         370 @ \$25 = \$9,250

Cost of Goods Sold [based on First In, First Out (FIFO)]
(Note: the vertical line down the middle of this T acct is missing! Put it in!)
-------------------------------------------↓-----------------------------------------------
1-10:                90 @ \$ 10 = \$900
3-15:                 10 @ \$10 = \$100
130 @ \$15 = \$1,950
10-26:              120 @ \$15 = \$1,800
180 @ \$20 = \$3,600
11-25:              220 @ \$20 = \$4,400
230 @ \$25 = \$5,750________________________________
Balance:          (980 units) \$18,500

Partial Income Statement:

Sales     (980 units @ \$40)                     \$39,200
Cost of Goods Sold                             - 18,500
Gross Profit                                   \$20,700

Inventory [based on Last In, First Out (LIFO)]
(Note: the vertical line down the middle of this T acct is missing! Put it in!)
-------------------------------------------↓-----------------------------------------------
1-1:            100 @ \$10 = \$1,000
1-10:                                               90 @ \$10 = \$900_____________
Balance:          10 @ \$10 =      \$100
3-14:            250 @ \$15 = \$3,750
3-15:                                              140 @ \$15 = \$2,100_____________
Balance:           10 @ \$10 =      \$100
110 @ \$15 = \$1,650
7-30:            400 @ \$20 = \$8,000
10-3:            600 @ \$25 = \$15,000
10-26:                                              300 @ \$25 = \$7,500____________
Balance:           10 @ \$10 =      \$100
110 @ \$15 = \$1,650
400 @ \$20 = \$8,000
300 @ \$25 = \$7,500
11-25:                                               300 @ \$25 = \$7,500
150 @ \$20 = \$3,000___________
Balance:          10 @ \$10 =      \$100
110 @ \$15 = \$1,650
250 @ \$20 = \$5,000
(370 units)      \$6,750

Cost of Goods Sold [based on Last In, First Out (LIFO)]
(Note: the vertical line down the middle of this T acct is missing! Put it in!)
-------------------------------------------↓-----------------------------------------------
1-10:              90 @ \$10 = \$900
3-15:             140 @ \$15 = \$2,100
10-26:            300 @ \$25 = \$7,500
11-25:            300 @ \$25 = \$7,500
150 @ \$20 = \$3,000__________________________________
(980 units)    \$21,000

Partial Income Statement
Sales     (980 units @ \$40)                      \$39,200
Cost of Goods Sold                              - 21,000
Gross Profit                                     \$18,200
Inventory [based on Weighted (Moving) Average Method]
(Note: the vertical line down the middle of this T acct is missing! Put it in!)
-----------------------------------------------↓-------------------------------------------
1-1:               100 @ \$10 =       \$1,000
1-10:                                             90 @ \$10 =          \$900___________
Balance:             10 @ \$10 =        \$100
3-14:              250 @ \$15 =       \$3,750
3-15:                                             140 @ \$14.81 = \$2,073___________
Balance:          120 @ \$14.81 = \$1,777
7-30:             400 @ \$20 =        \$8,000
10-3:              600 @ \$25 = \$15,000
10-26:                                            300 @ \$22.12 = \$6,639___________
Balance:          820 @ \$22.12 =\$18,138
11-25:                                             450 @ \$22.12 = \$9,954___________
Balance:          370 @ \$22.12 = \$8,184

Cost of Goods Sold [based on Weighted (Moving) Average Method]
(Note: the vertical line down the middle of this T acct is missing! Put it in!)
-----------------------------------------------↓-------------------------------------------
______________________________________________________________
1-10:             90 @ \$10       = \$900
3-15:            140 @ \$14.81 = \$2,073
10-26:           300 @ \$22.12 = \$6,639
11-25:          450_@ \$22.12 = \$9,954_________________________________
(980 units)       \$19,566

Partial Income Statement

Sales    (980 units @ \$40)                     \$39,200
Cost of Goods Sold                             - 19,566
Gross Profit                                   \$ 19,634

Summary:
FIFO                  LIFO            Average Cost
Partial Income Statement:

Sales    (980 units @ \$40)   \$39,200             \$39,200         \$39,200
Cost of Goods Sold           - 18,500           - 21,000         - 19,566
Gross Profit                  \$20,700            \$18,200         \$ 19,634

Skip the section on the Periodic Inventory System on pages 256-258.

Consistency Principle

Disclosure Principle

Materiality Concept

Conservatism Principle

Lower of Cost or Market (LCM)

Inventory Errors

Estimating inventory amounts

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