study guide

two types of inventory systems

perpetual and periodic

where are purchases and sales recorded under the perpetual system

inventory account

where are purchases recorded under the periodic system

purchases account

inventory control is important because

• safeguard assets 

• ensure financial statements are accurate 

what documents are used to control inventory

• purchase order

• receiving report

• subsidiary inventory ledger

subsidiary inventory ledger

provides details of the amount of inventory available

what are the three main cost flow methods

1. First-In, First-Out (FIFO)

2. Last-In, First-out (LIFO)

3. average cost

FIFO characteristics

• cost are included in COGS in the order they were purchased

• ending inventory consists of the most recent purchases

LIFO characteristics

• cost of the most recent purchases are assigned to COGS

• ending inventory consists of the oldest purchases

weighted average characteristics

• calculated a weighted average unit cost each time a purchase is made 

• also known as a moving average 

weighted average cost per unit formula

= total cost of units on hand / total units on hand

where is inventory reported

on the balance sheet at the lower of cost or market

where is COGS reported

income statement