Phone no: 9779851180527 or email us: info@silvercrown.com.np
Phone no: 9779851180527 or email us: info@silvercrown.com.np
Electronic product codes (EPCs) such as radio frequency
identifiers (RFIDs) are essentially an evolved version of UPCs in
which a chip/identifier is embedded in the EPC code that matches
the goods to the actual batch of product that was produced. This
more specific information allows better control, greater
accountability, increased efficiency, and overall quality
monitoring of goods in inventory. The technology advancements that
are available for perpetual inventory systems make it nearly
impossible for businesses to choose periodic inventory and forego
the competitive advantages that the technology offers. Perpetual inventory has been seen as the wave of the future for many years. It has grown since the 1970s alongside the development of affordable personal computers. These UPC codes identify specific products but are not specific to the particular batch of goods that were produced.
The LIFO costing assumption tracks inventory items based on lots of goods that are tracked, in the order that they were acquired, so that when they are sold, the latest acquired items are used to offset the revenue from the sale. The following cost of goods sold, inventory, and gross margin were determined from the previously-stated data, particular to LIFO costing. As you’ve learned, the periodic inventory system is updated at the end of the period to adjust inventory numbers to match the physical count and provide accurate merchandise inventory values for the balance sheet. The adjustment ensures that only the inventory costs that remain on hand are recorded, and the remainder of the goods available for sale are expensed on the income statement as cost of goods sold.
Specific identification inventory methods also commonly use a manual form of the perpetual system. Changes should be made at the end of an accounting period and cannot be changed each accounting period. Last in, first out (LIFO) is one of three common methods of allocating cost to ending inventory and cost of goods sold (COGS). It assumes that the most recent items purchased by the company were used in the production of the goods that were sold earliest in the accounting period. Under LIFO, the cost of the most recent items purchased are allocated first to COGS, while the cost of older purchases are allocated to ending inventory—which is still on hand at the end of the period. When using the FIFO inventory costing method, the most recent costs are assigned to the cost of goods sold.
Figure 10.20 shows the gross margin, resulting from the weighted-average perpetual cost allocations of $7,253. Businesses that use FIFO record the oldest inventory items to be sold first. When inventory is sold, the oldest cost of an item in inventory will be recovered and then reported on the income statement as part of the cost of goods sold. We track how many items were bought at the oldest price tier and then use them all up before moving onto the next price tier. Most companies that use LIFO are those that are forced to maintain a large amount of inventory at all times. By offsetting sales income with their highest purchase prices, they produce less taxable income on paper.
The specific identification costing assumption tracks inventory items individually, so that when they are sold, the exact cost of the item is used to offset the revenue from the sale. The cost of goods sold, inventory, and gross margin shown in Figure 10.5 were determined from the previously-stated data, particular to specific identification costing. The specific identification costing assumption tracks inventory items individually so that, when they are sold, the exact cost of the item is used to offset the revenue from the sale. The cost of goods sold, inventory, and gross margin shown in Figure 10.13 were determined from the previously-stated data, particular to specific identification costing. Beginning merchandise inventory had a balance before adjustment of $3,150. The inventory at period end should be $7,872, requiring an entry to increase merchandise inventory by $4,722.
Following that logic, ending inventory included 150 units purchased at $21 and 135 units purchased at $27 each, for a total LIFO periodic ending inventory value of $6,795. Subtracting this ending inventory from the $16,155 total of goods available for sale leaves $9,360 in cost of goods sold this period. Following that logic, ending inventory included 210 units purchased at $33 and 75 units purchased at $27 each, for a total FIFO periodic ending inventory value of $8,955. Subtracting this ending inventory from the $16,155 total of goods available for sale leaves $7,200 in cost of goods sold this period. As you’ve learned, the perpetual inventory system is updated
continuously to reflect the current status of inventory on an
ongoing basis. Modern sales activity commonly uses electronic
identifiers—such as bar codes and RFID technology—to account for
inventory as it is purchased, monitored, and sold.
When applying apply perpetual inventory updating, a second entry made at the same time would record the cost of the item based on LIFO, which would be shifted from merchandise inventory (an asset) to cost of goods sold (an expense). When applying perpetual inventory updating, a second entry made at the same time https://accounting-services.net/first-in-first-out-method/ would record the cost of the item based on FIFO, which would be shifted from merchandise inventory (an asset) to cost of goods sold (an expense). The cost of goods sold, inventory, and gross margin shown in Figure 10.19 were determined from the previously-stated data, particular to perpetual, AVG costing.
In this demonstration, assume that some sales were made by
specifically tracked goods that are part of a lot, as previously
stated for this method. For The Spy Who Loves You, the first sale
of 120 units is assumed to be the units from the beginning
inventory, which had cost $21 per unit, bringing the total cost of
these units to $2,520. Once those units were sold, there remained
30 more units of the beginning inventory. The second sale of 180 units consisted
of 20 units at $21 per unit and 160 units at $27 per unit for a
total second-sale cost of $4,740. Thus, after two sales, there
remained 10 units of inventory that had cost the company $21, and
65 units that had cost the company $27 each.
You assign the average cost of $13 per shirt to each of these buckets – 75 shirts sold and 225 left over in inventory. LIFO is banned under the International Financial Reporting Standards that are used by most of the world because it minimizes taxable income. That only occurs when inflation is a factor, but governments still don’t like it. In addition, there is the risk that the earnings of a company that is being liquidated can be artificially inflated by the use of LIFO accounting in previous years. Based on the LIFO method, the last inventory in is the first inventory sold. In total, the cost of the widgets under the LIFO method is $1,200, or five at $200 and two at $100.
The last transaction
was an additional purchase of 210 units for $33 per unit. Ending
inventory was made up of 10 units at $21 each, 65 units at $27
each, and 210 units at $33 each, for a total specific
identification perpetual ending inventory value of $8,895. The last-in, first-out method (LIFO) of cost allocation assumes that the last units purchased are the first units sold. Once those units were sold, there remained 30 more units of beginning inventory. At the time of the second sale of 180 units, the LIFO assumption directs the company to cost out the 180 units from the latest purchased units, which had cost $27 for a total cost on the second sale of $4,860. Thus, after two sales, there remained 30 units of beginning inventory that had cost the company $21 each, plus 45 units of the goods purchased for $27 each.
