Chapter 8 – Inventories and the
cost of goods sold
Cost flow assumptions
Average-cost-method
Five Elco generators in inventory, 2 of $1,000 and 3 of $1,200
Total cost: (2x$1,000) + (3x$1,200) = $5,600
Average cost per unit: $5,600:5 = $1,120
Sell one for $1,800
- Debit Cash for $1,800
- Credit Sales $1,800
- Debit Cost of goods sold for $1,120
- Credit Inventory for $1,120
First-in, first-out method
2 units in inventory bought on Jan. 5 for a unit cost of $1,000. 3 units in inventory bought on
Feb. 5 bought for a unit cost of $1,200. Record sale of 4 units.
2 units from Jan. 5 purchased at $1,000 $2,000
2 units from Feb. 5 purchased at $1,200 $2,400
Total $4,400
cost of goods sold
Cost flow assumptions
Average-cost-method
Five Elco generators in inventory, 2 of $1,000 and 3 of $1,200
Total cost: (2x$1,000) + (3x$1,200) = $5,600
Average cost per unit: $5,600:5 = $1,120
Sell one for $1,800
- Debit Cash for $1,800
- Credit Sales $1,800
- Debit Cost of goods sold for $1,120
- Credit Inventory for $1,120
First-in, first-out method
2 units in inventory bought on Jan. 5 for a unit cost of $1,000. 3 units in inventory bought on
Feb. 5 bought for a unit cost of $1,200. Record sale of 4 units.
2 units from Jan. 5 purchased at $1,000 $2,000
2 units from Feb. 5 purchased at $1,200 $2,400
Total $4,400
