Professional Documents
Culture Documents
Business Decision-Making
Kimmel Weygandt Kieso Trenholm Irvine Burnley
Chapter 6
• Average Cost
o Cost is determined using a moving (weighted) average
of the unit cost of the items purchased
Copyright ©2020 John Wiley & Sons, Inc. 9
First-in, First-out (FIFO)
• Merchandise inventory is recorded at most recent
(current) cost in the current assets section of statement
of financial position
• Cost of goods sold is recorded as an expense at oldest
inventory cost on the statement of income
• Ending inventory and cost of goods sold under FIFO
are the same for periodic and perpetual inventory
systems
Then Income
Then Cost of Then Gross Then Retained
If Inventory Is: Before Income
Goods Sold Is: Profit Is: Earnings Are:
Tax Is:
Overstated Understated Overstated Overstated Overstated
Understated Overstated Understated Understated Understated
365 days
Days in Inventory =
Inventory turnover