Perpetual Inventory System Methods

Handout By: Mary J. CollinsAccounting Instructional TechnicianExample of the three methods of Inventory................................................................. 2FIFO method of inventory...........................................................................................3-6Average Cost method of inventory.............................................................................6-10LIFO method of inventory.........................................................................................10-13

FIFO:Average Cost:LIFO:

In the real world inventory is bought and then sold during the year many times so acompany will have inventory coming in and out of the store at all times of the year. Theperpetual inventory system method tries to track the value of ending inventory during theyear so that the management knows these three facts about inventory during the year:how many units, unit price and total ending inventory cost at any given time during theyear. The system provides current and on going information for decisions of what andwhen to buy items for resell to customers.

Step by Step Direction on how to create these three Charts

FIFO method of perpetual Inventory systems will result in the same cost forending inventory as the periodic method.Step 1

The first step is to enter the beginning inventory from the end of the lastyear in your chart.

On going balance:

100 units multiplied by $26 per unit equals $2,600 beginningbalance carried over from previous year.3