Category Archive for: Inventories and the Cost of Goods Sold


Inventory often is the largest of a company’s  assets. But how liquid is this asset? How quickly will it be converted into cash? As’ a step toward answering these questions. short-term creditors often ‘compute the inventory turnover rate. Inventory Turnover Rate The inventory turnover rate is equal to the cost of goods sold divided by the average amount…

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explained the need for businesses to make a complete physical count of the merchandise on hand at least once a year. The primary reason for this procedure of “taking inventory” is to adjust the perpetual inventory records for unrecorded shrink- Explain the need for taking a age losses, such as theft, spoilage, or breakage. The physical inventory usually…

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First In First Out Method

The first-in, first-out method. often called FIFO, is based on the assumption that the first merchandise purchased is the first merchandise sold. Thus the accountant for Mead Electric would assume that the generator sold on March I was one of those purchased on January 5. The entry to record the cost of goods sold would be: Following this…

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Inventories and the Cost of Goods Sold

1. In a perpetual inventory system, determine the cost of goods sold using (a) specific identification, (b) average”cost, (c) FIFO, and (d) LIFO. Discuss the advantages and shortcomings of each method. 2. Explain the need for taking a physical inventory.. 3. Record shrinkage losses and other year-end adjustments to inventory 4In a periodic inventory system, determine the ending inventory and the cost of goods sold using (a)…

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