Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

Based on the table below, which shows inventory purchases and sales for July, what is the Cost of Goods Sold (COGS) for July under the perpetual inventory system using FIFO?\begin{array}{|c|c|c|}\hline\textbf{Date} & \textbf{Transaction} & \textbf{Units @ Cost} \\\hlineJuly\ 1 & Beginning Inventory & 100\ @\ \$10 \\July\ 5 & Purchase & 50\ @\ \$12 \\July\ 10 & Sale & 80\ \\July\ 20 & Purchase & 70\ @\ \$13 \\July\ 25 & Sale & 90 \\\hline\end{array}What is the cost of goods sold for July?

$1,980

$1,940

$2,000

$1,860

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Verified step by step guidance

Step 1: Understand the FIFO (First-In, First-Out) method. Under FIFO, the oldest inventory costs are used first when calculating the Cost of Goods Sold (COGS). This means that inventory purchased earlier is sold before inventory purchased later.

Step 2: Start with the beginning inventory and track the transactions chronologically. For July 1, the beginning inventory is 100 units at $10 each. On July 5, 50 units are purchased at $12 each, adding to the inventory.

Step 3: Calculate the COGS for the first sale on July 10 (80 units sold). Using FIFO, the first 80 units sold will come from the beginning inventory (100 units @ $10). Deduct 80 units from the beginning inventory, leaving 20 units @ $10.

Step 4: Update the inventory after the July 10 sale. After selling 80 units, the remaining inventory consists of 20 units @ $10 and 50 units @ $12. On July 20, 70 units are purchased at $13 each, adding to the inventory.

Step 5: Calculate the COGS for the second sale on July 25 (90 units sold). Using FIFO, the first 20 units sold will come from the remaining beginning inventory (20 units @ $10), the next 50 units will come from the July 5 purchase (50 units @ $12), and the final 20 units will come from the July 20 purchase (70 units @ $13). Deduct these units from the inventory to determine the remaining stock.