Recording transactions related to the purchase and sale of merchandize inventory was introduced and discussed in Chapter 5. This chapter reviews how the cost of goods sold is calculated using various inventory cost flow assumptions. Additionally, issues related to merchandize inventory that remains on hand at the end of an accounting period are also explored.
Learning Objectives
LO1 – Calculate cost of goods sold and merchandize inventory under specific identification, first-in first-out (FIFO), and weighted average cost flow assumptions, using the perpetual
inventory system.
LO2 – Explain the impact on financial statements of inventory cost flows and errors.
LO3 – Explain and calculate lower of cost and net realizable value inventory adjustments.
LO4 – Estimate merchandize inventory using the gross profit method and the retail inventory method.
LO5 – Calculate cost of goods sold and merchandize inventory under specific identification, first-in first-out (FIFO), and weighted average cost flow assumptions, using the periodic inventory
system.
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