It's all about principle.
A company should report the least favorable figures in the financial statements when two or more options are presented.
Conservatism
The inventory costing method that will ALWAYS have a COGS in between FIFO and LIFO if you use the same data.
Weighted Average Method
Beg inventory 21 units @ $10
June 8: Purchased 18 units @ $11
June 14: Sold 15 units @ $20
June 22: Purchased 20 units @ $15
June 27: Sold 24 units @ $20
If company uses FIFO, what is COGS on June 14?
$150
COGS/Average Merch Inventory
A company should report enough info for outsiders to make knowledgeable decisions about the company
Disclosure Principle
Which inventory method is the ENDING INVENTORY based on the cost of the oldest purchases
LIFO
Beg inventory 21 units @ $10
June 8: Purchased 18 units @ $11
June 14: Sold 15 units @ $20
June 22: Purchased 20 units @ $15
June 27: Sold 24 units @ $20
What would the COGS be on June 14th if you used LIFO?
$165
Formula for Days' Sales in Inventory
365/Inventory Turnover
A company must perform strictly proper accounting only for significant items.
Materiality Concept
Who is the most recent athlete to play in both the MLB and NFL
Drew Henson
Beg inventory 21 units @ $10
June 8: Purchased 18 units @ $11
June 14: Sold 15 units @ $20
June 22: Purchased 20 units @ $15
June 27: Sold 24 units @ $20
If company uses Weighted Average, what is COGS on June 14?
156.92
Using the information below, find the inventory turnover ratio.
COGS: $296,000
Beginning Merch Inv:$29,300
Ending Merch Inv:$16,700
12.87
A company should use the same accounting methods and procedures from period to period.
Consistency Principle
Which inventory costing method is the ENDING INVENTORY based on the cost of the newest purchases?
FIFO
Beg inventory 21 units @ $10
June 8: Purchased 18 units @ $11
June 14: Sold 15 units @ $20
June 22: Purchased 20 units @ $15
June 27: Sold 24 units @ $20
What would the inventory be on June 27th if you used LIFO?
17 units at $10 (170)
Using the information below, find the inventory turnover ratio.
COGS: $250,000
Beginning Merch Inv:$23,300
Ending Merch Inv:$26,700
10
How much did the Chewbacca costume weigh
8 pounds
Which inventory costing method is the COGS based on the cost of the oldest purchases?
FIFO
How many taste buds does the average human tongue have?
10,000
Using the information below, find the days sales in inventory.
COGS: $150,000
Beginning Merch Inv:$22,300
Ending Merch Inv:$27,700
60.83 days