10/1/2025

FOB Destination and Consignment

  • FOB Destination: Seller retains rights to inventory in transit.

  • Consignor: Owner of goods (Paris Company).

  • Consignee: Seller of goods (Harlow Company).

  • Unsold goods remain in inventory of the owner (Paris Company).

FOB Shipping Point

  • FOB Shipping Point: Seller loses rights as goods enter transit.

  • Buyer (Wahlberg Associates) responsible for freight costs and shipping insurance.

  • Purchased goods total: $75,000 + $2,400 (shipping) + $300 (insurance) + $980 (refurbishment) = $78,680.

Inventory Methods and Calculations

  • Perpetual Method: Tracks inventory in real-time for transactions.

    • Example Inventory Purchases:

    • Jan 1: 40 units @ $2 = $80.

    • Feb 14: 70 units @ $3 = $210.

    • Jun 30: 90 units @ $4 = $360.

    • Nov 19: 20 units @ $5 = $100.

    • Total: 220 units costing $750.

  • Accounting Methods: FIFO (First In, First Out) vs. LIFO (Last In, First Out).

    • FIFO example for cost of goods sold (COGS) and ending inventory computation based on sales.

    • LIFO example similarly defines COGS and ending inventory.

Gross Profit Calculation

  • Sales: 176 units @ $8 = $1,408.

  • FIFO COGS: $554; Gross Profit = $854.

  • LIFO COGS: $584; Gross Profit = $824.

  • Contrast in gross profits highlights effects of inventory methods during periods of different price changes.

Journal Entries

  • Sales transactions require proper journalization separating sales and the related COGS.

    • E.g., Sales (debit) vs Sales Revenue (credit), and COGS (debit) vs Inventory (credit).

Periodic Method

  • Easier calculations performed on a monthly basis rather than transactional.

  • Gives a snapshot at month's close rather than continuous tracking.

  • Discrepancies may occur between periodic and perpetual method results, especially in LIFO.

Method Comparison

  • Different methods (FIFO, LIFO, Weighted Average, Specific Identification) can yield different values for COGS and inventory.

  • The choice of inventory accounting method can significantly affect reported profits, especially in inflationary or deflationary periods.