1. Inventories and Cost of Goods Calculations
Chapter 9
Inventories and Cost of
Goods Calculations

2. Periodic Inventory System Perpetual Inventory System
9-1 Comparison of Journal Entries under Perpetual and Periodic Inventory Systems
23,000
22,770
230
Cash
Sales Discounts
Accounts Receivable
Cash received on account with a discount.
July 25
No entry
500
Merchandise Inventory
Cost of Goods Sold
1,000
Sales Returns and Allowances
Return on merchandise.
July 18
12,000
24,000
Sales Revenue
Sale of merchandise on credit.
July 16
37,240
760
38,000
Accounts Payable
Purchase Discounts
Payment on account with a discount.
July 14
200
Freight-in
Freight costs on purchases.
July 8
2,000
Purchase Returns and
Allowances
Purchase returns and allowances.
July 6
40,000
Purchases
Purchase of merchandise on credit.
July 5
Periodic Inventory System
Perpetual Inventory System
Transaction

3. 9-2 Cost of Goods Sold CALCULATION OF COST OF GOODS PURCHASED
Purchases
$36,000
Less: Purchase returns and allowances
Purchase discounts
$7,000
3,000
10,000
Net purchases
350,000
Add: Freight-in
5,000
Cost of goods purchased
$355,000
CALCULATION OF COST OF GOODS SOLD
Inventory, January 1
$40,000
355,000
Cost of goods available for sale
395,000
Inventory, December 31
50,000
Cost of goods sold
$345,000

4. 9-3 Components of the Income Statement using the Periodic Inventory System
Sales -
Sales returns and allowances
Sales discounts =
Net Sales
Net Sales -
Cost of goods sold =
Gross profit
Gross Profit
Net Sales
Purchases -
Purchase returns and allowances
Purchase discounts =
Net purchases +
Freight-in
Cost of goods purchased
Selling expenses (including freight-out) +
Administrative expenses =
Total operating expenses
Operating Expenses
Gross profit -
Total operating expenses =
Net income
Net Income
Beginning Inventory +
Cost of goods purchase =
Cost of goods available for sale -
Ending inventory
Cost of goods sold
Cost of Goods Sold

5. 9-4 Costing Ending Inventory using FIFO, LIFO and Average Cost Methods – Periodic System
Your company provided the following data for the year:
Units
Unit Cost
Total Cost
January 1 … 80
$15.00
$1,200
March 15 purchase … 60
16.00
960
June 20 purchase …
100
17.50
1750
October 25 purchase … 90
18.00
1,620
Units and goods available …
330
$5,530
Ending inventory (December 31) consists of 110 units.
Complete the costing of ending inventory under FIFO, LIFO, and average cost.

6. 9-4 Costing Ending Inventory using FIFO, LIFO and Average Cost Methods – Periodic System (continued)
Cost of goods available for sale ….
$5,530
LESS:
Ending Inventory (FIFO)
Dates: Units X Cost
October 25 (90 X $18,000) = $1,620
June 20 (20 X $17.50) = 350
1,970
Ending Inventory (LIFO)
Jan 1 (80 X $15.00) = $1,200
Mar 15 (30 X $16.00) = 480
1,680
Ending Inventory (Aver. Cost)
Wt. Aver. Cost + Units = Unit Cost
$5, = $16.76 (r)
$16.76/unit X 110 units
1,844 (r)
Cost of Goods Sold ….
$3,560
$3,850
$3,686
Balance Sheet Effects

7. 9-5 Effects of Inventory Errors
Cost of Goods Sold
Net Income
Beginning inventory understated
Understated
Overstated
Beginning inventory overstated
Ending inventory understated
Ending inventory overstated
SELF-CORRECTING ERRORS OVER TWO PERIODS
Current Period
Next Period
Ending Inventory Error
Beginning Inventory Error
An error’s effect on income this period
Reverse effect on net income in this period
CORRECT TOTAL INCOME OVER TWO PERIODS
becomes
offsets