Chapter 5 - Accounting for inventories. After you have mastered the material in this chapter, you will be able to: Record and report on inventory transactions using a perpetual system; explain the meaning of terms used to describe transportation costs, cash discounts, returns or allowances, and financing costs. | Chapter Five Accounting for Inventories McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin In this chapter, we will introduce four inventory cost flow methods. Specific Identification When a company’s inventory consists of many high-priced, low-turnover goods the record keeping necessary to use specific identification is more practical. 5- Recall that when goods are sold, product costs flow, or are transferred, from the Inventory account to the Cost of Goods Sold account. Four acceptable methods to determine the amount of cost to transfer are Specific identification First-in, first-out Last-in, first-out and Weighted average. When a company’s inventory consists of many high-priced, low-turnover goods the record keeping necessary to use specific identification is more practical. First-in, First-out The first-in, first-out cost flow method requires that the cost of the items purchased first be assigned to Cost of Goods Sold. FIFO 5- The first-in, first-out cost flow method requires that the cost of the items purchased first be assigned to Cost of Goods Sold. Last-in, First-out The last-in, first-out cost flow method requires that the cost of the items purchased last be assigned to Cost of Goods Sold. LIFO 5- The last-in, first-out cost flow method requires that the cost of the items purchased last be assigned to Cost of Goods Sold. Weighted Average The weighted average cost flow method assigns the average cost of the items available to Cost of Goods Sold. 5- The weighted average cost flow method assigns the average cost of the items available to Cost of Goods Sold. Physical Flow Our discussions about inventory cost flow methods pertain to the flow of costs through the accounting records, not the actual physical flow of goods. Cost flows can be done on a different basis than physical flow. 5- Our discussions about inventory cost flow methods pertain to the flow of . | Chapter Five Accounting for Inventories McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin In this chapter, we will introduce four inventory cost flow methods. Specific Identification When a company’s inventory consists of many high-priced, low-turnover goods the record keeping necessary to use specific identification is more practical. 5- Recall that when goods are sold, product costs flow, or are transferred, from the Inventory account to the Cost of Goods Sold account. Four acceptable methods to determine the amount of cost to transfer are Specific identification First-in, first-out Last-in, first-out and Weighted average. When a company’s inventory consists of many high-priced, low-turnover goods the record keeping necessary to use specific identification is more practical. First-in, First-out The first-in, first-out cost flow method requires that the cost of the items purchased first be assigned to Cost of .
