{"id":159,"date":"2015-03-19T00:02:20","date_gmt":"2015-03-19T00:02:20","guid":{"rendered":"https:\/\/courses.candelalearning.com\/finacct2x10xmaster\/?post_type=chapter&#038;p=159"},"modified":"2017-08-22T16:48:56","modified_gmt":"2017-08-22T16:48:56","slug":"methods-under-a-perpetual-inventory-system","status":"web-only","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/chapter\/methods-under-a-perpetual-inventory-system\/","title":{"raw":"Ch 7: Appendix A - Methods Under a Periodic Inventory System","rendered":"Ch 7: Appendix A &#8211; Methods Under a Periodic Inventory System"},"content":{"raw":"The good news for you is the inventory valuation methods under FIFO, LIFO,\u00a0weighted average (or average cost), and specific identification\u00a0are calculated\u00a0basically the same under the periodic and perpetual inventory systems!\u00a0 The bad news is the periodic method does do things just a little differently.\r\n<ul>\r\n \t<li>Perpetual inventory:\u00a0 Calculates cost of good sold for each sales and records a journal entry for cost of goods sold with each sales transaction.<\/li>\r\n \t<li>Periodic inventory:\u00a0 Follows the same basic principle but it calculates ONE\u00a0cost of goods sold amount\u00a0at the end of the month for all items based on the beginning inventory + all purchases and does not record cost of goods sold with each sales transaction.<\/li>\r\n<\/ul>\r\nThe data we have been working with from the videos in the previous section is:\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td><\/td>\r\n<td style=\"text-align: center\"><strong>Units<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>Cost<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>Amount<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 1 Beg Inventory<\/td>\r\n<td style=\"text-align: center\">300<\/td>\r\n<td style=\"text-align: center\">10<\/td>\r\n<td style=\"text-align: center\">$3,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 2 Purchase<\/td>\r\n<td style=\"text-align: center\">200<\/td>\r\n<td style=\"text-align: center\">15<\/td>\r\n<td style=\"text-align: center\">$3,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 11 Purchase<\/td>\r\n<td style=\"text-align: center\">100<\/td>\r\n<td style=\"text-align: center\">17<\/td>\r\n<td style=\"text-align: center\">$1,700<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 18 Purchase<\/td>\r\n<td style=\"text-align: center\">300<\/td>\r\n<td style=\"text-align: center\">20<\/td>\r\n<td style=\"text-align: center\">$6,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><strong>\u00a0 \u00a0 Total Purchases\u00a0\u00a0 <\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>900<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>\u00a0<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>$13,700<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td style=\"text-align: center\"><strong>Units\u00a0 <\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>Sales Price<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>Sales Amount<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 8 Sales<\/td>\r\n<td style=\"text-align: center\">300<\/td>\r\n<td style=\"text-align: center\">30<\/td>\r\n<td style=\"text-align: center\">$9,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 15 Sale<\/td>\r\n<td style=\"text-align: center\">250<\/td>\r\n<td style=\"text-align: center\">40<\/td>\r\n<td style=\"text-align: center\">$10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><strong>\u00a0 \u00a0 Total Sales<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>\u00a0550<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>\u00a0<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>$19,000<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\n<strong>FIFO Method<\/strong>\r\n\r\nUnder the FIFO Method, we use the <em>oldest inventory first <\/em>and work our way forward until the sales are complete.\u00a0 Under the periodic inventory, cost of goods sold is assigned at the end of the period only and not with each sales transaction.\u00a0 There were a total of 55o units sold (remember, price doesn't have anything to do with cost) and we will assign cost as follows:\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td><\/td>\r\n<td style=\"text-align: center\"><strong>Units<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>Cost<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>Amount<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 1 Beg Inventory<\/td>\r\n<td style=\"text-align: center\">300<\/td>\r\n<td style=\"text-align: center\">10<\/td>\r\n<td style=\"text-align: center\">$3,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 2 Purchase<\/td>\r\n<td style=\"text-align: center\">200<\/td>\r\n<td style=\"text-align: center\">15<\/td>\r\n<td style=\"text-align: center\">$3,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 11 Purchase<\/td>\r\n<td style=\"text-align: center\">50<\/td>\r\n<td style=\"text-align: center\">17<\/td>\r\n<td style=\"text-align: center\">$850<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><strong>\u00a0 \u00a0 Total cost of goods sold<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>550<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>\u00a0<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>$6,850<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 11 Purchase<\/td>\r\n<td style=\"text-align: center\">50<\/td>\r\n<td style=\"text-align: center\">17<\/td>\r\n<td style=\"text-align: center\">$850<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 18 Purchase<\/td>\r\n<td style=\"text-align: center\">300<\/td>\r\n<td style=\"text-align: center\">20<\/td>\r\n<td style=\"text-align: center\">$6,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><strong>\u00a0 \u00a0 Ending Inventory<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>350<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>\u00a0<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>$6,850<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nThe journal entries under the periodic inventory method using FIFO would be (see how cost of good sold is recorded once at the end of the period, in this case end of the month):\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td><strong>Date<\/strong><\/td>\r\n<td><strong>Account<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>Debit<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>Credit<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 2<\/td>\r\n<td>Merchandise Inventory<\/td>\r\n<td style=\"text-align: center\">3,000<\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td>\u00a0\u00a0 Accounts Payable<\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<td style=\"text-align: center\">3,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 8<\/td>\r\n<td>Accounts Receivable<\/td>\r\n<td style=\"text-align: center\">9,000<\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td>\u00a0\u00a0\u00a0\u00a0 Sales<\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<td style=\"text-align: center\">9,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 11<\/td>\r\n<td>Merchandise Inventory<\/td>\r\n<td style=\"text-align: center\">1,700<\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td>\u00a0\u00a0 Accounts Payable<\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<td style=\"text-align: center\">1,700<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 15<\/td>\r\n<td>Accounts Receivable<\/td>\r\n<td style=\"text-align: center\">10,000<\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td>\u00a0\u00a0 Sales<\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<td style=\"text-align: center\">10,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 18<\/td>\r\n<td>Merchandise Inventory<\/td>\r\n<td style=\"text-align: center\">6,000<\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td>\u00a0\u00a0 Accounts Payable<\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<td style=\"text-align: center\">6,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 31<\/td>\r\n<td>Cost of goods sold<\/td>\r\n<td style=\"text-align: center\">6,850<\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td>\u00a0\u00a0\u00a0\u00a0 Merchandise Inventory<\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<td style=\"text-align: center\">6,850<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<strong>LIFO Method<\/strong>\r\n\r\nUnder the LIFO Method, cost of goods sold is calculated using the <em>most recent inventory first<\/em> and then working our way backwards until the sales order has been filled.\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td><\/td>\r\n<td style=\"text-align: center\"><strong>Units<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>Cost<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>Amount<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 18 Purchase<\/td>\r\n<td style=\"text-align: center\">300<\/td>\r\n<td style=\"text-align: center\">20<\/td>\r\n<td style=\"text-align: center\">$6,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 11 Purchase<\/td>\r\n<td style=\"text-align: center\">100<\/td>\r\n<td style=\"text-align: center\">17<\/td>\r\n<td style=\"text-align: center\">$1,700<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 2 Purchase<\/td>\r\n<td style=\"text-align: center\">150<\/td>\r\n<td style=\"text-align: center\">15<\/td>\r\n<td style=\"text-align: center\">$2,250<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><strong>\u00a0 \u00a0 Total cost of goods sold<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>550<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>\u00a0<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>$9,950<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<td style=\"text-align: center\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 1 Beg Inventory<\/td>\r\n<td style=\"text-align: center\">300<\/td>\r\n<td style=\"text-align: center\">10<\/td>\r\n<td style=\"text-align: center\">$3,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Jan 2 Purchase<\/td>\r\n<td style=\"text-align: center\">50<\/td>\r\n<td style=\"text-align: center\">15<\/td>\r\n<td style=\"text-align: center\">$750<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><strong>\u00a0 \u00a0 Ending Inventory<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>350<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>\u00a0<\/strong><\/td>\r\n<td style=\"text-align: center\"><strong>$3,750<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nThe journal entries under FIFO would be the same but the\u00a0 entry to cost of goods sold and merchandise inventory done on January 31 and would be:\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>Jan 31<\/td>\r\n<td>Cost of goods sold<\/td>\r\n<td>9,950<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td>\u00a0\u00a0\u00a0\u00a0 Merchandise Inventory<\/td>\r\n<td><\/td>\r\n<td>9,950<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<strong>Weighted Average (or Average Cost)<\/strong>\r\n\r\nWatch this video from Note Pirate to understand the periodic inventory method using average cost:\r\n\r\nhttps:\/\/youtu.be\/YMWHUi6mU-Q\r\n\r\nUsing the information from the video, average cost was calculated as total value of beginning inventory and purchase $13,700 \/900 total units in beginning inventory and purchased to get $15.22. This average cost can then be applied to the 550 units in\u00a0sales during January and would be calculated as 550 units x $15.22 with the following journal entry (all other entries presented under FIFO would be the same):\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>Jan 31<\/td>\r\n<td>Cost of goods sold<\/td>\r\n<td>8,371<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td>\u00a0\u00a0\u00a0\u00a0 Merchandise Inventory<\/td>\r\n<td><\/td>\r\n<td>8,371<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<strong>Specific Identification<\/strong>\r\n\r\nSince the specific identification method, identifies exactly which cost the purchase comes from it does not change under perpetual or periodic.\u00a0 The only thing that changes is the timing of the entry.\u00a0 Under the perpetual method, cost of goods sold is calculated and recorded with every sale.\u00a0 Under the periodic inventory method, cost of goods sold is calculated at the end of the period only and recorded in one entry.\r\n\r\nhttp:\/\/www.openassessments.org\/assessments\/1276","rendered":"<p>The good news for you is the inventory valuation methods under FIFO, LIFO,\u00a0weighted average (or average cost), and specific identification\u00a0are calculated\u00a0basically the same under the periodic and perpetual inventory systems!\u00a0 The bad news is the periodic method does do things just a little differently.<\/p>\n<ul>\n<li>Perpetual inventory:\u00a0 Calculates cost of good sold for each sales and records a journal entry for cost of goods sold with each sales transaction.<\/li>\n<li>Periodic inventory:\u00a0 Follows the same basic principle but it calculates ONE\u00a0cost of goods sold amount\u00a0at the end of the month for all items based on the beginning inventory + all purchases and does not record cost of goods sold with each sales transaction.<\/li>\n<\/ul>\n<p>The data we have been working with from the videos in the previous section is:<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td style=\"text-align: center\"><strong>Units<\/strong><\/td>\n<td style=\"text-align: center\"><strong>Cost<\/strong><\/td>\n<td style=\"text-align: center\"><strong>Amount<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Jan 1 Beg Inventory<\/td>\n<td style=\"text-align: center\">300<\/td>\n<td style=\"text-align: center\">10<\/td>\n<td style=\"text-align: center\">$3,000<\/td>\n<\/tr>\n<tr>\n<td>Jan 2 Purchase<\/td>\n<td style=\"text-align: center\">200<\/td>\n<td style=\"text-align: center\">15<\/td>\n<td style=\"text-align: center\">$3,000<\/td>\n<\/tr>\n<tr>\n<td>Jan 11 Purchase<\/td>\n<td style=\"text-align: center\">100<\/td>\n<td style=\"text-align: center\">17<\/td>\n<td style=\"text-align: center\">$1,700<\/td>\n<\/tr>\n<tr>\n<td>Jan 18 Purchase<\/td>\n<td style=\"text-align: center\">300<\/td>\n<td style=\"text-align: center\">20<\/td>\n<td style=\"text-align: center\">$6,000<\/td>\n<\/tr>\n<tr>\n<td><strong>\u00a0 \u00a0 Total Purchases\u00a0\u00a0 <\/strong><\/td>\n<td style=\"text-align: center\"><strong>900<\/strong><\/td>\n<td style=\"text-align: center\"><strong>\u00a0<\/strong><\/td>\n<td style=\"text-align: center\"><strong>$13,700<\/strong><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td style=\"text-align: center\"><\/td>\n<td style=\"text-align: center\"><\/td>\n<td style=\"text-align: center\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td style=\"text-align: center\"><strong>Units\u00a0 <\/strong><\/td>\n<td style=\"text-align: center\"><strong>Sales Price<\/strong><\/td>\n<td style=\"text-align: center\"><strong>Sales Amount<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Jan 8 Sales<\/td>\n<td style=\"text-align: center\">300<\/td>\n<td style=\"text-align: center\">30<\/td>\n<td style=\"text-align: center\">$9,000<\/td>\n<\/tr>\n<tr>\n<td>Jan 15 Sale<\/td>\n<td style=\"text-align: center\">250<\/td>\n<td style=\"text-align: center\">40<\/td>\n<td style=\"text-align: center\">$10,000<\/td>\n<\/tr>\n<tr>\n<td><strong>\u00a0 \u00a0 Total Sales<\/strong><\/td>\n<td style=\"text-align: center\"><strong>\u00a0550<\/strong><\/td>\n<td style=\"text-align: center\"><strong>\u00a0<\/strong><\/td>\n<td style=\"text-align: center\"><strong>$19,000<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p><strong>FIFO Method<\/strong><\/p>\n<p>Under the FIFO Method, we use the <em>oldest inventory first <\/em>and work our way forward until the sales are complete.\u00a0 Under the periodic inventory, cost of goods sold is assigned at the end of the period only and not with each sales transaction.\u00a0 There were a total of 55o units sold (remember, price doesn&#8217;t have anything to do with cost) and we will assign cost as follows:<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td style=\"text-align: center\"><strong>Units<\/strong><\/td>\n<td style=\"text-align: center\"><strong>Cost<\/strong><\/td>\n<td style=\"text-align: center\"><strong>Amount<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Jan 1 Beg Inventory<\/td>\n<td style=\"text-align: center\">300<\/td>\n<td style=\"text-align: center\">10<\/td>\n<td style=\"text-align: center\">$3,000<\/td>\n<\/tr>\n<tr>\n<td>Jan 2 Purchase<\/td>\n<td style=\"text-align: center\">200<\/td>\n<td style=\"text-align: center\">15<\/td>\n<td style=\"text-align: center\">$3,000<\/td>\n<\/tr>\n<tr>\n<td>Jan 11 Purchase<\/td>\n<td style=\"text-align: center\">50<\/td>\n<td style=\"text-align: center\">17<\/td>\n<td style=\"text-align: center\">$850<\/td>\n<\/tr>\n<tr>\n<td><strong>\u00a0 \u00a0 Total cost of goods sold<\/strong><\/td>\n<td style=\"text-align: center\"><strong>550<\/strong><\/td>\n<td style=\"text-align: center\"><strong>\u00a0<\/strong><\/td>\n<td style=\"text-align: center\"><strong>$6,850<\/strong><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td style=\"text-align: center\"><\/td>\n<td style=\"text-align: center\"><\/td>\n<td style=\"text-align: center\"><\/td>\n<\/tr>\n<tr>\n<td>Jan 11 Purchase<\/td>\n<td style=\"text-align: center\">50<\/td>\n<td style=\"text-align: center\">17<\/td>\n<td style=\"text-align: center\">$850<\/td>\n<\/tr>\n<tr>\n<td>Jan 18 Purchase<\/td>\n<td style=\"text-align: center\">300<\/td>\n<td style=\"text-align: center\">20<\/td>\n<td style=\"text-align: center\">$6,000<\/td>\n<\/tr>\n<tr>\n<td><strong>\u00a0 \u00a0 Ending Inventory<\/strong><\/td>\n<td style=\"text-align: center\"><strong>350<\/strong><\/td>\n<td style=\"text-align: center\"><strong>\u00a0<\/strong><\/td>\n<td style=\"text-align: center\"><strong>$6,850<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>The journal entries under the periodic inventory method using FIFO would be (see how cost of good sold is recorded once at the end of the period, in this case end of the month):<\/p>\n<table>\n<tbody>\n<tr>\n<td><strong>Date<\/strong><\/td>\n<td><strong>Account<\/strong><\/td>\n<td style=\"text-align: center\"><strong>Debit<\/strong><\/td>\n<td style=\"text-align: center\"><strong>Credit<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Jan 2<\/td>\n<td>Merchandise Inventory<\/td>\n<td style=\"text-align: center\">3,000<\/td>\n<td style=\"text-align: center\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\u00a0\u00a0 Accounts Payable<\/td>\n<td style=\"text-align: center\"><\/td>\n<td style=\"text-align: center\">3,000<\/td>\n<\/tr>\n<tr>\n<td>Jan 8<\/td>\n<td>Accounts Receivable<\/td>\n<td style=\"text-align: center\">9,000<\/td>\n<td style=\"text-align: center\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\u00a0\u00a0\u00a0\u00a0 Sales<\/td>\n<td style=\"text-align: center\"><\/td>\n<td style=\"text-align: center\">9,000<\/td>\n<\/tr>\n<tr>\n<td>Jan 11<\/td>\n<td>Merchandise Inventory<\/td>\n<td style=\"text-align: center\">1,700<\/td>\n<td style=\"text-align: center\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\u00a0\u00a0 Accounts Payable<\/td>\n<td style=\"text-align: center\"><\/td>\n<td style=\"text-align: center\">1,700<\/td>\n<\/tr>\n<tr>\n<td>Jan 15<\/td>\n<td>Accounts Receivable<\/td>\n<td style=\"text-align: center\">10,000<\/td>\n<td style=\"text-align: center\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\u00a0\u00a0 Sales<\/td>\n<td style=\"text-align: center\"><\/td>\n<td style=\"text-align: center\">10,000<\/td>\n<\/tr>\n<tr>\n<td>Jan 18<\/td>\n<td>Merchandise Inventory<\/td>\n<td style=\"text-align: center\">6,000<\/td>\n<td style=\"text-align: center\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\u00a0\u00a0 Accounts Payable<\/td>\n<td style=\"text-align: center\"><\/td>\n<td style=\"text-align: center\">6,000<\/td>\n<\/tr>\n<tr>\n<td>Jan 31<\/td>\n<td>Cost of goods sold<\/td>\n<td style=\"text-align: center\">6,850<\/td>\n<td style=\"text-align: center\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\u00a0\u00a0\u00a0\u00a0 Merchandise Inventory<\/td>\n<td style=\"text-align: center\"><\/td>\n<td style=\"text-align: center\">6,850<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><strong>LIFO Method<\/strong><\/p>\n<p>Under the LIFO Method, cost of goods sold is calculated using the <em>most recent inventory first<\/em> and then working our way backwards until the sales order has been filled.<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td style=\"text-align: center\"><strong>Units<\/strong><\/td>\n<td style=\"text-align: center\"><strong>Cost<\/strong><\/td>\n<td style=\"text-align: center\"><strong>Amount<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Jan 18 Purchase<\/td>\n<td style=\"text-align: center\">300<\/td>\n<td style=\"text-align: center\">20<\/td>\n<td style=\"text-align: center\">$6,000<\/td>\n<\/tr>\n<tr>\n<td>Jan 11 Purchase<\/td>\n<td style=\"text-align: center\">100<\/td>\n<td style=\"text-align: center\">17<\/td>\n<td style=\"text-align: center\">$1,700<\/td>\n<\/tr>\n<tr>\n<td>Jan 2 Purchase<\/td>\n<td style=\"text-align: center\">150<\/td>\n<td style=\"text-align: center\">15<\/td>\n<td style=\"text-align: center\">$2,250<\/td>\n<\/tr>\n<tr>\n<td><strong>\u00a0 \u00a0 Total cost of goods sold<\/strong><\/td>\n<td style=\"text-align: center\"><strong>550<\/strong><\/td>\n<td style=\"text-align: center\"><strong>\u00a0<\/strong><\/td>\n<td style=\"text-align: center\"><strong>$9,950<\/strong><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td style=\"text-align: center\"><\/td>\n<td style=\"text-align: center\"><\/td>\n<td style=\"text-align: center\"><\/td>\n<\/tr>\n<tr>\n<td>Jan 1 Beg Inventory<\/td>\n<td style=\"text-align: center\">300<\/td>\n<td style=\"text-align: center\">10<\/td>\n<td style=\"text-align: center\">$3,000<\/td>\n<\/tr>\n<tr>\n<td>Jan 2 Purchase<\/td>\n<td style=\"text-align: center\">50<\/td>\n<td style=\"text-align: center\">15<\/td>\n<td style=\"text-align: center\">$750<\/td>\n<\/tr>\n<tr>\n<td><strong>\u00a0 \u00a0 Ending Inventory<\/strong><\/td>\n<td style=\"text-align: center\"><strong>350<\/strong><\/td>\n<td style=\"text-align: center\"><strong>\u00a0<\/strong><\/td>\n<td style=\"text-align: center\"><strong>$3,750<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>The journal entries under FIFO would be the same but the\u00a0 entry to cost of goods sold and merchandise inventory done on January 31 and would be:<\/p>\n<table>\n<tbody>\n<tr>\n<td>Jan 31<\/td>\n<td>Cost of goods sold<\/td>\n<td>9,950<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\u00a0\u00a0\u00a0\u00a0 Merchandise Inventory<\/td>\n<td><\/td>\n<td>9,950<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><strong>Weighted Average (or Average Cost)<\/strong><\/p>\n<p>Watch this video from Note Pirate to understand the periodic inventory method using average cost:<\/p>\n<p>https:\/\/youtu.be\/YMWHUi6mU-Q<\/p>\n<p>Using the information from the video, average cost was calculated as total value of beginning inventory and purchase $13,700 \/900 total units in beginning inventory and purchased to get $15.22. This average cost can then be applied to the 550 units in\u00a0sales during January and would be calculated as 550 units x $15.22 with the following journal entry (all other entries presented under FIFO would be the same):<\/p>\n<table>\n<tbody>\n<tr>\n<td>Jan 31<\/td>\n<td>Cost of goods sold<\/td>\n<td>8,371<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>\u00a0\u00a0\u00a0\u00a0 Merchandise Inventory<\/td>\n<td><\/td>\n<td>8,371<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><strong>Specific Identification<\/strong><\/p>\n<p>Since the specific identification method, identifies exactly which cost the purchase comes from it does not change under perpetual or periodic.\u00a0 The only thing that changes is the timing of the entry.\u00a0 Under the perpetual method, cost of goods sold is calculated and recorded with every sale.\u00a0 Under the periodic inventory method, cost of goods sold is calculated at the end of the period only and recorded in one entry.<\/p>\n<p><iframe src=\"https:\/\/lumenoea.herokuapp.com\/assessments\/load?src_url=https:\/\/lumenoea.herokuapp.com\/api\/assessments\/1276.xml&#38;results_end_point=https:\/\/lumenoea.herokuapp.com\/api&#38;assessment_id=1276&#38;confidence_levels=true&#38;enable_start=true&#38;eid=https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/chapter\/methods-under-a-perpetual-inventory-system\/\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><\/iframe><\/p>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-159\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>Prepare the Average Cost Method for a Perpetual Inventory System. <strong>Authored by<\/strong>: Note Pirate. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/7oNqWQhK3b8\">https:\/\/youtu.be\/7oNqWQhK3b8<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":1195,"menu_order":8,"template":"","meta":{"_candela_citation":"[{\"type\":\"copyrighted_video\",\"description\":\"Prepare the Average Cost Method for a Perpetual Inventory System\",\"author\":\"Note Pirate\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/7oNqWQhK3b8\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-159","chapter","type-chapter","status-web-only","hentry"],"part":102,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/159","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/wp-json\/wp\/v2\/users\/1195"}],"version-history":[{"count":14,"href":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/159\/revisions"}],"predecessor-version":[{"id":2224,"href":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/159\/revisions\/2224"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/wp-json\/pressbooks\/v2\/parts\/102"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/159\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/wp-json\/wp\/v2\/media?parent=159"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=159"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/wp-json\/wp\/v2\/contributor?post=159"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/tcc-financialaccounting\/wp-json\/wp\/v2\/license?post=159"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}