INVENTORY NOTES (PART 2)

INVENTORY SYSTEMS
PERPETUAL PERIODIC
(Normal)

Buying inventory
DR Inventory (A) DR Purchases (A)
CR Bank (A) / T. Payables (L) CR Bank (A) / T. Payables (L)

Selling inventory during the year

DR Sales income (P/L) DR Sales income (P/L)
CR Bank (A) CR Bank (A)

DR Cost of sales expense (P/L)

CR Inventory (A)

Year end
Nothing! Everything already updated Think COS = OB + Purchases – CB

DR Cost of sales expense (P/L)

CR Inventory (A)

DR Cost of sales expense (P/L)

CR Purchases (A)

DR Inventory (A)
CR Cost of sales expense (P/L)
INVENTORY COSTING

First-in-first-out (FIFO)

Inventory bought first gets sold first

Typical with fresh produce.

All items of inventory keep their original cost on the system

Weighted Average Cost (WAC)

Cost of each inventory item is an average of all items bought.

Perpetual system and WAC costing

Calculate a moving weighted average cost (ie. Recalculate weighted average every time a
sale is made)

1. Calculate the cost of the closing inventory is the company uses the FIFO costing
method and Perpetual inventory system.

2. Calculate the cost of the sale made on 24 March using the period and weighted
average costing system.
3. Calculate the cost of the closing inventory using the periodic and weighted average
costing systems.

4. Calculate the cost of the inventory sold on 24 March using the perpetual and
weighted average costing system