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Transcript of © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved.
1
Lecture Extention: Inventory Demonstration
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved.
2
P
EI
BI
Importance of Inventory
COGS
GAFS
To Balance Sheet
To IncomeStatement
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3
Arbitrary Assumptions Concerning Cost Flow
• in order expenditures were made -- FIFO
• in reverse order in which expenditures were made -- LIFO
• average of expenditures
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4
Balance Sheet Income Statement
MI COGS
First In … First OUT
Latest Ite
ms Left O
ver
Time Time Time Time Time Time Time Time Time
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5
Balance Sheet Income Statement
MI COGS
Las
t In
Firs
t OU
TOldest Item
s Left
Time Time Time Time Time Time Time Time Time
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6
Balance Sheet Income Statement
MI COGS
FIFO LIFO FIFO LIFO
Rising Prices
NI
Time Time Time Time Time Time Time Time Time
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7
January
December
Assumption
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8
FIFO
????
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9
FIFO
????
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LIFO
????
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11
LIFO
????
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12
Looking for what?
EndingInventory
Cost ofGoodsSold
Which
Method?
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved.
13
Balance Sheet Income Statement
MI COGS
First In … First OUT
Latest Ite
ms Left O
ver
Time Time Time Time Time Time Time Time Time
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14
COGS
EI
FIFO
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved.
15
Looking for what?
EndingInventory
Cost ofGoodsSold
Which
Method?
![Page 16: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/16.jpg)
© Copyright 2011 by M. Ray Gregg. All Rights Reserved.
16
Balance Sheet Income Statement
MI COGS
Las
t In
Firs
t OU
TOldest Item
s Left
Time Time Time Time Time Time Time Time Time
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17
EI
COGS
LIFO
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 18
Inventory Demonstration
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 19
Inventory Demonstration
In its first month of operations, AC Company made three purchases of merchandise in the following sequence:
300 units @ $6400 units @ $7300 units @ $8
Assuming there are 450 units on hand, compute the cost of the ending inventory and cost of goods sold under the (1) FIFO method, (2) LIFO method, and (3) average method. AC Company uses a periodic inventory system.
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 20
Inventory Demonstration
In its first month of operations, AC Company made three purchases of merchandise in the following sequence:
300 units @ $6400 units @ $7300 units @ $8
Assuming there are 450 units on hand, compute the cost of the ending inventory and cost of goods sold under the (1) FIFO method, (2) LIFO method, and (3) average method. AC Company uses a periodic inventory system.
RisingPrices?
$6$7$8
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21
Balance Sheet Income Statement
MI COGS
FIFO LIFO FIFO LIFO
Rising Prices
NI
Time Time Time Time Time Time Time Time Time
? ? ? ?
? ?
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22
Balance Sheet Income Statement
MI COGS
FIFO LIFO FIFO LIFO
Rising Prices
NI
Time Time Time Time Time Time Time Time Time
![Page 23: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/23.jpg)
© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 23
In its first month of operations, AC Company made three purchases of merchandise in the following sequence:
300 units @ $6400 units @ $7300 units @ $8
Assuming there are 450 units on hand, compute the cost of the ending inventory and cost of goods sold under the (1) FIFO method, (2) LIFO method, and (3) average method. AC Company uses a periodic inventory system.
Inventory Demonstration
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Inventory Demonstration
(1) Purchase 300 $6(2) Purchase 400 $7(3) Purchase 300 $8
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Inventory Demonstration
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7(3) Purchase 300 $8
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Inventory Demonstration
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8
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Inventory Demonstration
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
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Inventory Demonstration
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
1,000
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 29
Inventory Demonstration
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
1,000 $7,000
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Inventory Demonstration
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Find EI using FIFO.
? ?
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31
Looking for what?
EndingInventory
Cost ofGoodsSold
Which
Method?
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32
COGS
EI
FIFO
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 33
Inventory Demonstration
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Find EI using FIFO.
? ?
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Quantity Price Amount
300 $8 $2,400
450
EI under FIFO
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Quantity Price Amount
300 $8 $2,400150 $7 1,050450
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under FIFO
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Quantity Price Amount
300 $8 $2,400150 $7 1,050450 $3,450
EI under FIFO
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37
Balance Sheet Income Statement
MI COGS
FIFO LIFO FIFO LIFO
Rising Prices
NI
Time Time Time Time Time Time Time Time Time
$3,450
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 38
Inventory Demonstration
In its first month of operations, AC Company made three purchases of merchandise in the following sequence:
300 units @ $6400 units @ $7300 units @ $8
Assuming there are 450 units on hand, compute the cost of the ending inventory and cost of goods sold under the (1) FIFO method, (2) LIFO method, and (3) average method. AC Company uses a periodic inventory system.
![Page 39: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/39.jpg)
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P
EI
BI
COGSGAFS
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under FIFOCost of Goods Sold
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under FIFOCost of Goods Sold GAFS $7,000
- E I= COGS
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under FIFOCost of Goods Sold GAFS $7,000
- E I 3,450= COGS
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under FIFOCost of Goods Sold GAFS $7,000
- E I 3,450= COGS $3,550
Prove it!
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 44
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Find EI using FIFO.
? ?
Cost of Goods Sold
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved.
45
Looking for what?
EndingInventory
Cost ofGoodsSold
Which
Method?
![Page 46: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/46.jpg)
© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 46
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under FIFOCost of Goods Sold Quantity Price Amount
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 47
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under FIFOCost of Goods Sold Quantity Price Amount
300 $6 $1,800
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Quantity Price Amount
300 $6 $1,800250 $7 1,750
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under FIFOCost of Goods Sold
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Quantity Price Amount
300 $6 $1,800250 $7 1,750550 $3,550
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under FIFOCost of Goods Sold
![Page 50: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/50.jpg)
© Copyright 2011 by M. Ray Gregg. All Rights Reserved.
50
Balance Sheet Income Statement
MI COGS
FIFO LIFO FIFO LIFO
Rising Prices
NI
Time Time Time Time Time Time Time Time Time
$3,450 $3,550
![Page 51: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/51.jpg)
© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 51
Inventory Demonstration
In its first month of operations, AC Company made three purchases of merchandise in the following sequence:
300 units @ $6400 units @ $7300 units @ $8
Assuming there are 450 units on hand, compute the cost of the ending inventory and cost of goods sold under the (1) FIFO method, (2) LIFO method, and (3) average method. AC Company uses a periodic inventory system.
![Page 52: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/52.jpg)
© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 52
Inventory Demonstration
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
![Page 53: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/53.jpg)
© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 53
Inventory Demonstration
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Find EI using LIFO.
? ?
![Page 54: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/54.jpg)
© Copyright 2011 by M. Ray Gregg. All Rights Reserved.
54
Looking for what?
EndingInventory
Cost ofGoodsSold
Which
Method?
![Page 55: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/55.jpg)
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55
EI
COGS
LIFO
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© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 56
Inventory Demonstration
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Find EI using LIFO.
? ?
![Page 57: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/57.jpg)
© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 57
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Quantity Price Amount
300 $6 $1,800
450
EI under LIFO
![Page 58: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/58.jpg)
© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 58
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Quantity Price Amount
300 $6 $1,800150 $7 1,050450
EI under LIFO
![Page 59: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/59.jpg)
© Copyright 2011 by M. Ray Gregg. All Rights Reserved. 59
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Quantity Price Amount
300 $6 $1,800150 $7 1,050450 $2,850
EI under LIFO
![Page 60: © Copyright 2011 by M. Ray Gregg. All Rights Reserved. 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e915503460f94b95b0b/html5/thumbnails/60.jpg)
© Copyright 2011 by M. Ray Gregg. All Rights Reserved.
60
Balance Sheet Income Statement
MI COGS
FIFO LIFO FIFO LIFO
Rising Prices
NI
Time Time Time Time Time Time Time Time Time
$3,450$3,550$2,850
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under LIFOCost of Goods Sold GAFS $7,000
- E I= COGS
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under LIFOCost of Goods Sold GAFS $7,000
- E I 2,850= COGS
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under LIFOCost of Goods Sold GAFS $7,000
- E I 2,850= COGS $4,150
Prove it!
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Find EI using LIFO.
? ?
Cost of Goods Sold
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Looking for what?
EndingInventory
Cost ofGoodsSold
Which
Method?
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under LIFOCost of Goods Sold Quantity Price Amount
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under LIFOCost of Goods Sold Quantity Price Amount
300 $8 $2,400
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under LIFOCost of Goods Sold Quantity Price Amount
300 $8 $2,400250 $7 1,750
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under LIFOCost of Goods Sold Quantity Price Amount
300 $8 $2,400250 $7 1,750550 $4,150
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Balance Sheet Income Statement
MI COGS
FIFO LIFO FIFO LIFO
Rising Prices
NI
Time Time Time Time Time Time Time Time Time
$3,450
$3,550$2,850
$4,150
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Inventory Demonstration
In its first month of operations, AC Company made three purchases of merchandise in the following sequence:
300 units @ $6400 units @ $7300 units @ $8
Assuming there are 450 units on hand, compute the cost of the ending inventory and cost of goods sold under the (1) FIFO method, (2) LIFO method, and (3) average method. AC Company uses a periodic inventory system.
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Inventory Demonstration
(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
1,000 $7,000
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under AVERAGE
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Find the AVERAGE:
GAFS units =
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Find the AVERAGE:
GAFS units = $7,000
1,000
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Find the AVERAGE:
GAFS units =
$7,000 1,000 = $7.00
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P
EI
BI
Use AVERAGE for BOTH
COGS
GAFS
Average to Balance Sheet
Average to Income Stmt
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Quantity Price Amount
450 $7 $3,150
EI under AVERAGE
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Balance Sheet Income Statement
MI COGS
FIFO LIFO FIFO LIFO
Rising Prices
NI
Time Time Time Time Time Time Time Time Time
$3,450
$3,550$2,850
$4,150
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under AVERAGECost of Goods Sold GAFS $7,000
- E I= COGS
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under AVERAGECost of Goods Sold GAFS $7,000
- E I 3,150= COGS
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
EI under AVERAGECost of Goods Sold GAFS $7,000
- E I 3,150= COGS $3,850
Prove it!
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(1) Purchase 300 $6 $1,800(2) Purchase 400 $7 2,800(3) Purchase 300 $8 2,400
Total GAFS 1,000 $7,000
Quantity Price Amount
550 $7 $3,850
EI under AVERAGECost of Goods Sold
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P
EI
BI
Use AVERAGE for BOTH
COGS
GAFS
Average of $7 to Balance Sheet
Avg of $7 to Income Stmt
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Balance Sheet Income Statement
MI COGS
FIFO LIFO FIFO LIFO
Rising Prices
NI
Time Time Time Time Time Time Time Time Time
$3,450
$3,550$2,850
$4,150
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