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
Assume a company began June with 21 units of merch inventory, with a cost of $10 per unit. During June, the company did the following.
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 FIFO?
$150
COGS/Average Merch Inventory
Your ending merchandise inventory is overstated by $3,000 for 2020. What does that mean for your beginning merchandise inventory in 2021. (Overstated or Understated, by how much?)
Overstated by $3,000
A company should report enough info for outsiders to make knowledgeable decisions about the company
Disclosure Principle
Often time places that sell cars, or other customizable expensive products will use this inventory costing method.
Specific Identification Method
Assume a company began June with 21 units of merch inventory, with a cost of $10 per unit. During June, the company did the following.
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
What company is the largest employer in USA?
Walmart
A company must perform strictly proper accounting only for significant items.
Materiality Concept
What is the fastest animal in water?
Sailfish
Assume a company began June with 21 units of merch inventory, with a cost of $10 per unit. During June, the company did the following.
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 total COGS be after June 27th if you used LIFO?
$508
What is the name of the MLB team that calls Cleveland their home?
Guardians
Overstated by $2,800
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?
LIFO
How many people are there on earth? (answer must be within .1 billion)
8.1 billion
Using the information below, find the inventory turnover ratio.
COGS: $250,000
Beginning Merch Inv:$23,300
Ending Merch Inv:$26,700
10
How many stomachs does a platypus have?
How many chromosomes are in a human cell?
46 (23 pairs)
Which inventory costing method is the COGS based on the cost of the oldest purchases?
FIFO
Assume a company began June with 21 units of merch inventory, with a cost of $10 per unit. During June, the company did the following.
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 total COGS be after June 27th if you used Weighted Average Method?
$457.38 (if you are within 1 dollars, I will give it to you from rounding)
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
You have $18,000 in your ending merchandise inventory. On Dec 31st, you could replace your inventory for $16,400. Write the adjusting journal entry.
COGS $1,600
Merch Inventory $1,600