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    Daisy2's Avatar
    Daisy2 Posts: 5, Reputation: 1
    New Member
    		  
    #1

    Mar 4, 2007, 07:19 PM
    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)?
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
    Ultra Member
    		  
    #2

    Mar 4, 2007, 07:30 PM
    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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