![]() Okay july 5th we sold 700 units at $30 apiece. So first in first out let's look at our sale on july 5th. Okay and this is gonna be every time we have a sale we're gonna account for, how much was the cost of goods sold for that sale. Okay so we're gonna think about what did we sell, what was the cost of goods sold in the Fife Oh method. Okay so let's go ahead and start here with the Fife Oh method. Okay if you just have to do perpetual well don't worry about that little quip. Right? Because the perpetual method it doesn't need the count but a periodic method, you do need to count the ending inventory. Okay notice if you were one of the people who had to study periodic inventory and perpetual inventory for these methods, notice that in the perpetual method they don't give you a physical quantity for the ending inventory. Okay so we've got some sales and purchases throughout the month and then it asks us these questions are always gonna ask us this is always the end game to calculate cost of goods sold and ending inventory. Right? We're always updating the system and that includes when we sell units as well. So a company had the following inventory data for the month of july and then we've got some data notice here that this inventory data includes sales, it's not just purchases in a perpetual system. Cool.Īlright let's go ahead and start this example with the Fife Oh Method. And then we will start an example on how to use these methods in a perpetual system. All right, So let's go ahead and pause here. We just look at it kind of in the big picture. Right? We're gonna use these methods to help simplify the process and it doesn't have to align with which actual can we we sold and what we paid for that can No, that doesn't matter. We can we don't have to match that actual can with the cost of that actual can itself. But that doesn't matter with the accounting records. Physical flow is which, you know, if we're selling cans of soda, which can of soda we are actually selling? Well, that would be the physical physical flow. It does not have to be consistent with the physical flow of goods. Is that the cost flow assumption? Whether we're using FIFA Life? Oh, average cost. And a very important note that I want to make here. Well, that will give us the cost per unit. Which is just if we take the total cost of everything we have divided by the amount of units that we have. ![]() This is going to give us a cost per unit. And this is how we find our average is a pretty simple formula. Okay, So we are going to be updating that average quite quite often. So the average is gonna be updated after each purchase and sale. So since we're always updating the record while we're gonna constantly have to change the average, we're gonna have to move the average based on the record. Okay, So the perpetual system, we have kind of a special thing with the average, it's called the moving average, right? Because we're perpetually updating the inventory record. Right? The average cost and this is the average of what you paid for the units. So the last one average cost this is that goods are sold at their average cost. Every time we purchase we're getting a different price and that forces us to use one of these methods to cost our inventory. Oh the whole point of it is that we're buying units at different prices. The whole trick to these questions when we deal with this FIFA life. Right? Our our cost of goods sold is going to include what we paid for newer units. So the cost of goods sold on the income statement. Okay so this is the newest unit gets sold first. Well that means that the newest unit that we received is the one that we're gonna sell. Well the cost of goods sold, it's gonna have what we paid for our older units, right? We're gonna put our older units into cost of goods sold, compare that to last in first out. Okay so for selling the oldest units first, that means that our cost of goods sold. So the oldest unit is the one that gets sold first. Okay so the first unit that goes out of inventory. Oh so this means that the first unit that came into our inventory is gonna be the first unit that we sell. Okay so let's talk about what these are the first one, First in first out. So what we do is we use these cost flow assumptions and that's gonna help us track our cost of goods sold an inventory here. Okay so if you think about it, if we're selling a bunch of cans of soda were reselling identical uh cans of soda, you can't tell 11 can of soda from the other can of soda, they're all gonna be identical in essence, Right? So we can't really tell the difference. This is when we're selling large amounts of identical inventory. Oh and average cost in a perpetual inventory system. Alright now let's discuss how to use Fife.
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