Perpetual Inventory

Question

Mar 4, 2007, 05:19 PM

Daisy2

New Member

Join Date: Feb 2007

Posts: 5

Perpetual Inventory

Jan. 1 Inventory ..... 100 units at ..... $5.00 each
Jan. 4 Sale ............... 80 units at ..... $8.00 each
Jan.11 Purchase....... 150 units at ..... $6.00 each
Jan. 13 Sale ............ 120 units at ..... $8.75 each
Jan. 20 Purchase ......160 units at ...... $7.00 each
Jan. 27 Sale .............100 units at ...... $9.00 each

The correct journal entry for Jan. 13 under the perpetual inventory system is:

Dr. Accounts Receivable 1050
Cr. Sales (120 x $8.75) 1050

Dr. COGS 700
Cr. Inventory (20 X 5) + (100 x 6) 700

CAN SOMEONE PLEASE TELL ME WHY IT IS ((20 X 5) + (100 x 6)) AND NOT
(120 UNITS x 6)??

Answers

Mar 4, 2007, 05:30 PM	#2

CaptainForest

Finance & Accounting Expert

Join Date: Nov 2005

Location: Canada

Posts: 3,658

On Jan 5, inventory is 20 units x $5 = $100
Jan 11 Purchase 150 x $6 = $900

Jan 13 sales of 120 units x 8.75 = $1,050

JE on Jan 13:
Dr. Cash 1,050
Cr. Sales 1,050

Dr. COGS 700
Cr. Inventory 700

UNDER THE FIFO METHOD, we assume that the first units are sold first. Therefore, we have 170 units total (Jan 5 and 11).

We assume we sell the first 20 units of Jan 5 first, therefore 20x5, and the remainder from the Jan 11 purchase.

Therefore…
20 units x $5 (what we paid)
100 units x $6 (what we paid)

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