In this chapter, we will delve into the various methods used to determine the cost of inventory in both periodic and perpetual inventory systems. Understanding how to assign costs to inventory and cost of merchandise sold is crucial in accurately reporting financial information.
- Introduction to Determining the Cost of Inventory
we will discus the costs that are included in merchandise inventory and the minor costs that may be excluded due to materiality or cost-to-benefit constraints. We will also discuss the difference between periodic and perpetual inventory systems and the importance of determining per unit costs in accounting for inventory.
- Inventory Costing Methods Under Periodic Inventory System
we will examine the four inventory costing methods commonly used in periodic inventory systems: specific identification, first-in first-out (FIFO), last-in first-out (LIFO), and weighted average.
- Inventory Costing Methods Under Perpetual Inventory System
we will focus on inventory costing methods under a perpetual inventory system, which involves recording the cost of merchandise sold and reductions in inventory as sales occur.
- Comparison of Inventory Costing Methods
will compare the different inventory costing methods and discuss the pros and cons of each method.