ACG 2021 Chapter 6 – Inventory Summary

Formula - 1 Beginning Inventory + Purchases Goods Available for Sale - Ending Inventory Cost of Goods Sold

Formula - 2 Beginning Inventory + Purchases Goods Available for Sale - Cost of Goods Sold Ending Inventory

Formula - 3 Sales - Cost of Goods Sold Gross Profit Ratio: Gross Profit % Gross Profit / Sales

Inventory Transactions Purchase Inventory Inventory xxxxx Cash or A/P xxxxx Sale of Inventory Cash or A/R xxxx Sales xxxxx Cost of Goods Sold xxxx Inventory xxxxx How do you know what the cost is?

CGS/Inventory Cost Methods Specific Unit Each inventory item can be uniquely identified Average Cost FIFO First In First Out Sold Units cost (CGS) determined by 1 st units purchased Ending Inventory cost determined by last units purchased LIFO Last In Last Out Sold Units cost (CGS) determined by last units purchased Ending Inventory cost determined by 1 st units purchased

Inventory Accounting Principle Lower of Cost or Market Market = Replacement Cost If Replacement Inventory < Inventory Cost Adjust Ending Inventory (doesn’t matter which method was used to compute cost) Reduce Inventory Balance Increase CGS Balance CGS xxxx Inventory xxxxx

Ratios Gross Profit % Gross Profit / Sales Inventory Turnover Cost of Goods Sold / Average Inventory