Principles Of Accounting(会计学原理)Chapter_06.ppt

* Take a minute and review this chart. We will use this data throughout our inventory examples so we can compare our results at the end. The inventory information is provided by Trekking, a sporting goods retailer. Data for the month of August includes: 1) beginning inventory; 2) purchases; and 3) sales. * Part I First, let’s look at the specific identification method. In this method, we know the specific cost of each unit that is sold. It is most commonly used in businesses that have low sales volume of high dollar items, like car dealerships, exclusive jewelry stores, and custom builders. On August 14th, Trekking sold 8 bikes that cost $91 each and 12 bikes that cost $106. The total cost of goods sold on this date is $2,000. Part II On August 31st Trekking sold 23 bikes with the cost per unit shown on your screen. The total cost of good sold on this date is $2,582. Let’s look at inventory at the end of August. Using the specific identification method, On August 31st, there are 12 units in inventory at $1,408 (5 units at $115 each plus 7 units at $119 each). Total cost of goods sold for the month is equal to $4,582 ($2,000 from the sale of August 14th plus $2,582 from the sale of August 28th). Trekking would report Cost of Goods Sold on their August income statement of $4,582, and report Inventory on their balance sheet of $1,408. * Here are the entries to record the purchases and sales discussed previously. All purchases and sales are made on credit. The selling price of inventory on August 14th was $130 per unit sold, and the selling price for the August 31st sale was $150 per unit sold. The numbers in red were determined using the specific identification method. * The first-in, first-out method is abbreviated as FIFO, and pronounced as Fifo. When using FIFO, we assign the older costs to the units sold. That leaves the more recent costs to be used to value ending inventory. * First, the company assigns the cost of the 10 oldest inventory items from b