61 Calculate the Cost of Goods Sold and also Ending Inventory Using the Periodic Method

As you’ve learned, the periodic inventory device is updated at the finish of the duration to readjust inventory numbers to enhance the physical count and administer accurate merchandise inventory values for the balance sheet. The adjustment ensures that only the inventory costs that remajor on hand are taped, and also the remainder of the items available for sale are expensed on the earnings statement as expense of products marketed. Here we will show the mechanics supplied to calculate the finishing inventory worths utilizing the four cost alarea methods and also the periodic inventory mechanism.

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Information Relating to All Cost Allocation Methods, but Specific to Periodic Inventory Updating

Let’s return to the instance of The Spy Who Loves You Corporation to demonstrate the 4 price allocation approaches, assuming inventory is updated at the finish of the duration making use of the regular device.


Cost Documents for Calculations

Company: Spy Who Loves You Corporation

Product: Global Positioning System (GPS) Tracking Device

Description: This product is an economical real-time GENERAL PRACTITIONERS tracking tool, designed for individuals that wish to monitor others’ whereabouts. It is being marketed to parental fees of middle school and also high college students as a safety measure. Paleas benefit by being apprised of the child’s area, and also the student benefits by not having actually to constantly check in through parental fees. Demand also for the product has spiked during the current fiscal duration, while supply is restricted, leading to the selling price to escalate rapidly. Note: For simplicity of demonstration, start inventory cost is assumed to be $21 per unit for all cost presumption methods.

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The gross margin, resulting from the specific identification periodic expense alareas of $7,260, is displayed in (Figure).


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Calculations of Costs of Goods Sold, Ending Inventory, and also Gross Margin, First-in, First-out (FIFO)

The FIFO costing assumption tracks inventory items based upon segments or numerous products that are tracked, in the order that they were acquired, so that when they are sold, the earliest got items are provided to balance out the revenue from the sale. The expense of products offered, inventory, and also gross margin displayed in (Figure) were identified from the previously-stated information, particular to FIFO costing.


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Calculations for Inventory Adjustment, Periodic/First-in, First-out (FIFO)Beginning merchandise inventory had a balance of $3,150 before adjustment. The inventory at duration finish have to be $8,955, requiring an enattempt to boost merchandise inventory by $5,895. Journal entries are not presented, but the adhering to calculations administer the information that would be used in recording the important journal entries. Cost of goods offered was calculated to be $7,200, which need to be taped as an price. The crmodify entry to balance the adjustment is for $13,005, which is the total amount that was videotaped as purchases for the period. This entry distributes the balance in the purchases account between the inventory that was offered (price of products sold) and also the amount of inventory that stays at duration end (merchandise inventory).


Last-in, First-out (LIFO)

The last-in, first-out technique (LIFO) of cost alarea assumes that the last systems purchased are the initially devices offered. For The Spy Who Loves You, considering the entire period together, 300 of the 585 systems accessible for the duration were marketed, and also if the latest acquisitions are taken into consideration offered first, then the devices that reprimary under LIFO are those that were purchased first. Following that logic, ending inventory consisted of 150 systems purchased at $21 and 135 units purchased at $27 each, for a total LIFO routine finishing inventory worth of $6,795. Subtracting this ending inventory from the $16,155 full of items obtainable for sale leaves $9,360 in price of items offered this period.

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The gross margin, resulting from the LIFO periodic expense alareas of $9,360, is presented in (Figure).


Calculations for Inventory Adjustment, Periodic/Last-in, First-out (LIFO)Beginning merchandise inventory had actually a balance before adjustment of $3,150. The inventory at period finish should be $6,795, requiring an enattempt to rise merchandise inventory by $3,645. Journal entries are not shown, but the following calculations carry out the indevelopment that would be provided in recording the crucial journal entries. Cost of goods marketed was calculated to be $9,360, which should be videotaped as an price. The crmodify entry to balance the adjustment is for $13,005, which is the full amount that was tape-recorded as purchases for the duration. This enattempt distributes the balance in the purchases account between the inventory that was offered (expense of products sold) and the amount of inventory that stays at period end (merchandise inventory).


Weighted-Mean Cost (AVG)

Weighted-average price allocation needs computation of the average price of all systems in products easily accessible for sale at the moment the sale is made. For The Spy Who Loves You, considering the entire period, the weighted-average cost is computed by splitting complete price of products easily accessible for sale ($16,155) by the total number of accessible units (585) to get the average price of $27.62. Keep in mind that 285 of the 585 units accessible for sale throughout the period remained in inventory at duration finish. Following that logic, finishing inventory consisted of 285 units at an average expense of $27.62 for a total AVG periodic ending inventory value of $7,872. Subtracting this ending inventory from the $16,155 complete of goods accessible for sale leaves $8,283 in price of products marketed this period. It is essential to note that final numbers have the right to frequently differ by one or 2 cents because of rounding of the calculations. In this instance, the price pertains to $27.6154 yet rounds as much as the proclaimed expense of $27.62.


Calculations of Costs of Goods Sold, Ending Inventory, and also Gross Margin, Weighted Mean (AVG)

The AVG costing presumption tracks inventory items based upon numerous goods that are tracked yet avereras the expense of all devices on hand also eexceptionally time an addition is made to inventory so that, as soon as they are marketed, the many recently averaged cost items are provided to offset the revenue from the sale. The cost of products sold, inventory, and also gross margin shown in (Figure) were determined from the previously-proclaimed information, certain to AVG costing.


(Figure) reflects the gross margin resulting from the weighted-average routine cost allocations of $8283.


Journal Entries for Inventory Adjustment, Periodic/Weighted AverageBeginning merchandise inventory had actually a balance before adjustment of $3,150. The inventory at duration finish must be $7,872, requiring an enattempt to boost merchandise inventory by $4,722. Journal entries are not presented, but the following calculations administer the information that would be provided in recording the crucial journal entries. Cost of products sold was calculated to be $8,283, which need to be recorded as an price. The credit enattempt to balance the adjustment is for $13,005, which is the complete amount that was tape-recorded as purchases for the period. This entry distributes the balance in the purchases account between the inventory that was sold (expense of goods sold) and also the amount of inventory that continues to be at period end (merchandise inventory).


Key Concepts and also Summary

The periodic inventory mechanism updays inventory at the finish of a fixed bookkeeping period. Throughout the audit period, inventory documents are not changed, and also at the finish of the period, inventory records are changed for what was offered and included during the duration.Companies utilizing the routine and perpetual strategy for inventory updating pick between the standard four expense circulation presumption methods, which are first-in, first-out (FIFO); last-in, first-out (LIFO); certain identification (SI); and weighted average (AVG).Periodic inventory devices are still offered in exercise, yet the ubiquity of their usage has actually considerably diminimelted, through breakthroughs in innovation and as prices for inventory monitoring software program have actually significantly diminished.

(Figure)Which of these statements is false?

If price of goods sold is incorrect, ending inventory is typically incorrect as well.start inventory + purchases = price of products soldending inventory + cost of products marketed = products accessible for salegoods accessible for sale – beginning inventory = purchases

(Figure)Complete the absent piece of information entailing the changes in inventory, and their relationship to goods accessible for sale, for the 2 years shown:

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Calculate the finishing inventory dollar value for the period for each of the adhering to price allocation techniques, utilizing periodic inventory updating. Provide your calculations.

first-in, first-out (FIFO)last-in, first-out (LIFO)weighted average (AVG)

(Figure)Akira Company type of had actually the adhering to transactions for the month.

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(Figure)Complete the lacking item of indevelopment involving the alters in inventory, and also their relationship to items available for sale, for the 2 years displayed.

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Calculate the ending inventory dollar worth for each of the complying with expense allocation approaches, making use of routine inventory updating. Provide your calculations.

first-in, first-out (FIFO)last-in, first-out (LIFO)weighted average (AVG)

(Figure)Bleistine Company type of had actually the complying with transactions for the month.

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(Figure)Trini Company type of had the complying with transactions for the month.

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Calculate the expense of goods sold dollar value for the period for each of the adhering to price alarea techniques, using routine inventory updating. Provide your calculations.

first-in, first-out (FIFO)last-in, first-out (LIFO)weighted average (AVG)

(Figure)DeForest Company had the adhering to transactions for the month.

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Calculate the ending inventory dollar worth for the duration for each of the adhering to expense alplace methods, making use of routine inventory updating. Provide your calculations.

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first-in, first-out (FIFO)last-in, first-out (LIFO)weighted average (AVG)

(Figure)Assume your agency offers the periodic inventory costing approach, and the inventory count left out an entire warehouse of products that were in stock at the end of the year, via a cost value of $222,000. How will certainly this affect your net income in the present year? How will it impact following year’s net income?


Previous: Describe and Demonstrate the Basic Inventory Valuation Methods and also Their Cost Flow Assumptions
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Principles of Accounting, Volume 1: Financial Accounting by OSCRiceUniversity is licensed under a Creative Commons Attribution-NonCommercial-ShareAfavor 4.0 Internationwide License, except where otherwise provided.