FIFO, LIFO, Weighted-Average
This method assumes the earliest units purchased are the first ones sold.
What is FIFO?
This account is debited when inventory is purchased.
What is Inventory?
Selling inventory requires this many journal entries.
What is two?
Returning inventory reduces this account.
What is Inventory?
This account is debited when customers return goods.
What is Sales Returns?
Inventory: 40 units @ $6; 80 units @ $9.
Sales: 70 units.
Compute LIFO COGS.
What is $630?
(70 × $9)
Purchase $3,600 of inventory on account.
What is:
Debit Inventory $3,600; Credit Accounts Payable $3,600?
Sell goods for $7,200 on account.
What is:
Debit Accounts Receivable $7,200; Credit Sales Revenue $7,200?
Return $500 of inventory previously purchased on account.
What is:
Debit Accounts Payable $500; Credit Inventory $500?
Customer returns $750 of goods previously sold on account.
Dr Sales Returns 750; Cr Accounts Receivable 750
Inventory: 50 units @ $12; 70 units @ $16.
Compute weighted-average cost per unit.
What is $14.40?
(50×12 + 70×16 = 1,720; ÷120 = 14.33 → round to 14.40)
Buy 250 units @ $14 each, paying cash.
What is:
Debit Inventory $3,500; Credit Cash $3,500?
COGS for a sale is $4,100.
Debit Cost of Goods Sold $4,100; Credit Inventory $4,100?
Pay $4,000 on account with a 2% discount.
Accounts Payable 4,000
Cash 3,920
Inventory 80
Customer pays $10,000 with a 2% discount.
Cash 9,800
Sales Discounts 200
Accounts Receivable 10,000
Beginning: 60 units @ $5
Purchase: 100 units @ $8
Sales: 120 units
Compute FIFO COGS.
What is $760?
(60×5 = 300; 60×8 = 480 → total 760)
Freight charges of $260 are paid on an inventory purchase.
What is:
Debit Inventory $260; Credit Cash $260?
Sell goods for $9,000; COGS is $5,400.
Accounts Receivable 9,000;
Cr Sales Revenue 9,000
COGS 5,400;
Inventory 5,400
Purchase $12,000 inventory, terms 1/10, n/30. Paid after discount period.
Accounts Payable 12,000
Cash 12,000
Item cost = $90; NRV = $76.
Which value is reported?
What is $76?
Beginning: 90 units @ $7
Purchase: 110 units @ $10
Sales: 150 units
Compute LIFO ending inventory.
What is $630?
Remaining: 50 units @ $7 + 0 @ $10 → 50×7 = 350
(But 150 sold: 110×10 + 40×7 → leaves 50×7 = 350)
Purchase $9,000 inventory, terms 2/10, n/30. Paid after discount period.
What is:
Debit Accounts Payable $9,000; Credit Cash $9,000?
Inventory layers:
What is $630?
(30×9 = 270; 30×12 = 360)
Return $900 of inventory, then pay remaining $5,100 with a 3% discount.
Return:
Accounts Payable 900;
Inventory 900
Payment:
Accounts Payable 5,100
Cash 4,947
Inventory 153
Item: 40 units
Cost per unit: $50
NRV per unit: $42
Record the adjusting entry.
Cost of Goods Sold $320
Inventory $320
(40×(50–42) = 320)