Inventory Valuation Methods in Accounting

This article discusses the FIFO and weighted average methods of inventory valuation in accounting. It explains how these methods work and their impact on the value of inventory. The article also highlights the benefits of using cloud-based accounting software and the importance of internal controls in preventing fraud.

ACCOUNTING 1
ACCOUNTING

ACCOUNTING 2
Answer 1:
The following are the relevant calculations:
(
i
)
a
)
First-
in-
first-
out
(FIFO
)
This method of inventory valuation is based on the assumption that the usage or sale
of goods follows the same order in which they are bought i.e. to say under this
method the earlier purchased goods are considered as first used. As a result, under
this method, the inventory is valued at most recent purchased price
b
)
Weig
hted
Avera
ge
Under this method of inventory valuation the cost of goods sold and inventory are
valued at weighted average cost of goods available during the period i.e. Cost of
Opening Inventory plus the Cost of Purchases is divided by the total units
(
i
i
)
a
)
Perpe
ctual
Meth
od of

ACCOUNTING 3
Inven
tory
Date Journal Entry
D
r.
/
C
r.
Amo
unt in
$
01-Jan Bank A/c
D
r.
2
0,
0
0
0
To Share Capital A/c
C
r.
2
0,
0
0
0
(Being shares issued)
03-Jan Inventory A/c D
r. 2,
4
0

ACCOUNTING 4
0
To Plush Toys Ltd.
C
r.
2,
4
0
0
(Being 400 soft toys purchased @
$6 per unit)
06-Jan Cost of Goods Sold (COGS) A/c
D
r.
9
6
0
To Inventory
C
r.
9
6
0
(Being cost of 160 soft toys
transferred to COGS @ $6 per
unit)
06-Jan Rainbow Preschool A/c
D
r.
1,
6
0
0
To Sales A/c C

ACCOUNTING 5
r.
1,
6
0
0
(Being 160 soft toys sold)
09-Jan Inventory A/c
D
r.
2,
1
0
0
To Bank A/c
C
r.
2,
1
0
0
(Being 300 soft toys purchases via
ETF @ $7 per unit)
12-Jan Plush Toys Ltd.
D
r.
2,
4
0
0
To Bank A/c C

ACCOUNTING 6
r.
2,
4
0
0
(Being amount paid to Plush Toys)
15-Jan Bank A/c
D
r.
1,
6
0
0
To Rainbow Preschool A/c
C
r.
1,
6
0
0
(Being amount received from
Rainbow Preschool)
20-Jan Cost of Goods Sold (COGS) A/c
D
r.
1,
2
0
0
To Inventory C

ACCOUNTING 7
r.
1,
2
0
0
(Being cost of 200 soft toys
transferred to COGS @ $6 per unit
from purchase of 3rd January)
20-Jan Children's Hospital A/c
D
r.
2,
0
0
0
To Sales A/c
C
r.
2,
0
0
0
(Being 200 soft toys sold)
22-Jan Inventory A/c
D
r.
1,
0
5
0

ACCOUNTING 8
To Plush Toys Ltd.
C
r.
1,
0
5
0
(Being 150 soft toys purchased @
$7 per unit)
24-Jan Plush Toys Ltd. A/c
D
r.
1,
0
5
0
To Bank A/c
C
r.
1,
0
2
9
To Discount Received A/c
C
r.
2
1
(Being amount paid to Plush Toys
and availed 2% discount)
25-Jan Cost of Goods Sold (COGS) A/c D

ACCOUNTING 9
r.
1,
3
6
0
To Inventory
C
r.
1,
3
6
0
(Being cost of 200 soft toys
transferred to COGS - 40 soft toys
@ $ 6 per unit from purchase of
3rd January and balance 160 soft
toys @ $ 7 per unit from purchase
of 9th January)
25-Jan Bank A/c
D
r.
2,
4
0
0
To Sales A/c C
r. 2,
4
0

ACCOUNTING 10
0
(Being 200 soft toys sold online)
31-Jan Closing Balance of Inventory
Number of Soft Toys
2
9
0
Value @ $7 per unit
2
0
3
0
(140 soft toys @ $ 7 per unit from
purchase of 9th January and 150
soft toys @ $ 7 per unit from
purchase of 22nd January)
b
)
Perio
dic
Meth
od of
Inven
tory
Date Journal Entry D
r.
/
Amo
unt in
$

ACCOUNTING 11
C
r.
01-Jan Bank A/c
D
r.
2
0,
0
0
0
To Share Capital A/c
C
r.
2
0,
0
0
0
(Being shares issued)
03-Jan Purchases A/c
D
r.
2,
4
0
0
To Plush Toys Ltd. C
r. 2,
4
0

ACCOUNTING 12
0
(Being 400 soft toys purchased @
$6 per unit)
06-Jan Rainbow Preschool A/c
D
r.
1,
6
0
0
To Sales A/c
C
r.
1,
6
0
0
(Being 160 soft toys sold)
09-Jan Purchases A/c
D
r.
2,
1
0
0
To Bank A/c C
r. 2,
1
0

ACCOUNTING 13
0
(Being 300 soft toys purchases via
ETF @ $7 per unit)
12-Jan Plush Toys Ltd.
D
r.
2,
4
0
0
To Bank A/c
C
r.
2,
4
0
0
(Being amount paid to Plush Toys)
15-Jan Bank A/c
D
r.
1,
6
0
0
To Rainbow Preschool A/c C
r. 1,
6
0

ACCOUNTING 14
0
(Being amount received from
Rainbow Preschool)
20-Jan Children's Hospital A/c
D
r.
2,
0
0
0
To Sales A/c
C
r.
2,
0
0
0
(Being 200 soft toys sold)
22-Jan Purchases A/c
D
r.
1,
0
5
0
To Plush Toys Ltd. C
r. 1,
0
5

ACCOUNTING 15
0
(Being 150 soft toys purchased @
$7 per unit)
24-Jan Plush Toys Ltd. A/c
D
r.
1,
0
5
0
To Bank A/c
C
r.
1,
0
2
9
To Discount Received A/c
C
r.
2
1
(Being amount paid to Plush Toys
and availed 2% discount)
25-Jan Bank A/c
D
r.
2,
4
0
0

ACCOUNTING 16
To Sales A/c
C
r.
2,
4
0
0
(Being 200 soft toys sold online)
31-Jan Cost of Goods Sold A/c
D
r.
3
5
2
0
Inventory A/c
D
r.
2
0
3
0
To Purchases A/c
C
r.
5
5
5
0
(Being Cost of Good sold and
inventory transferred from
Purchases A/c)
COGS: 560 soft toys
- Initial 200 soft toys @ $ 6 per
unit

ACCOUNTING 17
- Next 200 soft toys @ $ 6 per unit
- Last 160 soft toys @ $ 7 per unit
Inventory: 290 soft toys
- 290 soft toys @ $ 7 per unit
To: Mr and Mrs Spot
From: A
Re: Inventory method
Date: July 12, 2019
Question presented: Inventory methods
Under the FIFO method of inventory valuation is based on the assumption that the usage or
sale of goods follows the same order in which they are bought i.e. to say under this method
the earlier purchased goods are considered as first used. As a result, under this method, the
inventory is valued at most recent purchased price
Under the weighted average method of inventory valuation the cost of goods sold and
inventory are valued at weighted average cost of goods available during the period i.e. Cost
of Opening Inventory plus the Cost of Purchases is divided by the total units
Answer 2:
The following are the benefits if using the Xerox accounting software:
 This is the type of an accounting in which the cloud book keeping and automation
goes side by side. The system allows the automating of all of the manual tasks and
this sort of the software is very important for the company. This helps in the scaling
of the business operations which the company did not have earlier. Plus the time spent

ACCOUNTING 18
by the book keepers and the accountants entering the data into the system could be
saved and the same could be used in something which is more fruitful. There are
many companies today that are using a larger accounting platform which have a
vibrant add on ecosystem. This software is the solution to each and very document,
workflow to the forecasting of the cash flows. Thee cloud book keeping helps in the
efficient management of the cash flows and this ensures support to an increased
number of clients. They could focus on higher paying work.
 This software helps in the efficient management of the cash flows which makes sure
the financial success of the business owners. The owners of the company may not
always have an insight inti the finances if the company and even then they are duty
bound to manage the day to day operations of the business. It is the shortage of this
information that is capable of making or breaking the company. But cloud book
keeping helps in solving the issues like these. It puts the owners back on track and
helps them in an efficient management if the financial operations or the financial
health of the company. The company will have to no longer wait for the latest version
of the accounting software when it comes to the checking of the various incomes and
the expenses. The various owners of the business would be able to understand as to
where the money is going and from where it is coming. They would be able to control
the business transactions.
 The owners of the business can access the information as and when they need it. This
helps then in accessing the information as and when they require and they are able to
know the exact movement of the business transactions. The advisors employed by the
company are today spending about 35% of the time in looking and in accessing of
their documents. With the adoption of this cloud based accounting software, they are
able to utilise that time in catering to the needs of the clients. The owners of the

ACCOUNTING 19
company would be able to manage business and also leverage business solutions from
these financial documents if they are available online. The maintenance of these
documents are secure in the cloud and are accessible from anywhere in the world.
This merely means that these documents are readily available and can be accessed
whenever and wherever needed. This helps in a greater control over their time.
 Another advantage of using this software is the fact that is available with the push
updates which means that it is very different from the desktop wherein there is a new
version that one would be stuck with. Further, the upgrades are only available when a
new version is purchased. This software would fly without incurring an extra cost for
the user. This software also seeks the feedback from their customers which means that
the customers are always kept in loop whenever any new improvement is to be made.
 The manual backing up of the data is very much difficult and hence, when the backing
up is automated, it would prove to be less painful for the company. Hence, this is the
software that would lead to a deep integration between this book keeping software
and their add ons. This back up is something which is automatic.
 Further, one just has to update the new numbers of the inventory, the rest of the work
is done by this software itself. All of the inventory records are updated automatically
which means hassle free updations and an error free and a more accurate book
keeping of all of the business transactions backed up by the relevant documents and
also the maintenance of the adequate inventory records (Xero, 2019).
In the nutshell, when a business is blooming, it is better to automate the financial records
since manual intervention can only lead to mistakes or errors. Also, the time spent in manual
intervention could be utilised to make the business more fruitful.
All the work is done automatically by the system.

ACCOUNTING 20
Answer 3:
The main aim of the internal controls is to save the business from any sort of fraud that may
take place. And also, to ensure that all of the business activities show the correct and the true
picture of the financial position of the company.
The following are the 2 cases:
 Mr Wilkinson from Employsure stated that one of his clients was operating a small
time business of importing the Italian coffee machines, he used to travel a lot and he
found that his money was being stolen. He then found out that one of his employees
was stealing from him and with the help of the evidence from the camera that he had
placed, he terminated his employment (The news, 2019).
 In another case, the owner of the building supplies company was caught making the
refunds to the amount of $150,000 into their personal bank accounts. They were
trying to cover up these records with the help of forging stock records (ABC news,
2019).
The following are some of the internal controls that could be placed:
 Separation of the people form the duties that include collection and keeping the cash
in safe custody
 A limited amount of access should be given to the people to the assets that are critical
and that are important.
 A physical audit of all of the assets must be done so that any irregular transaction
could easily and timely be uncovered.
 Periodic reconciliations must be done so that anything which is irregular can be
uncovered and an appropriate action could be taken for the same (Small business
chron, 2019).

ACCOUNTING 21
The above would help in limiting the access to the public and to the employees. And this
would also help in reconciling and knowing any fraud that has occurred.
Answer 4:
The following are the desired calculations:
(i) Bank reconciliation as at 31 August 2018
Cash Balance as per Bank Statement
29,667.
68
Add: Outstanding Deposits
- 31/08/2018
1,600.
00
Less: Unpresented Cheques
- Chq 130
200.
00
- Chq 132
195.
00
- Chq 135
511.
00
- Chq 138
870.
50
- Chq 141
1,266.
00
- Chq 142
972.
00
4,014.
50
Cash Balance as per Ledger (should have been) 27,253.

ACCOUNTING 22
18
(ii
)
Date Journal Entries Dr. Cr.
02-08-
2018 Accounts Payable A/c 90
To Bank A/c 90
(Being Cheque of $ 430 earlier recorded as $ 340 now
rectified)
08-08-
2018 Bank A/c 80
To Accounts Receivable A/c 80
(Being Cheque of $ 5800 earlier recorded as $ 5880
now rectified)
09-08-
2018 Bank A/c 10
To Accounts Receivable A/c 10
(Being Cheque of $ 1332 earlier recorded as $ 1322
now rectified)

ACCOUNTING 23
10-08-
2018 Bank A/c 4950
To Accounts Payable A/c 4950
(Being Cheque of $ 500 earlier recorded as $ 5000
now rectified)
16-08-
2018 Bank A/c 3200
To Accounts Receivable A/c 3200
(Being recording of Cheque of $ 3200 which was not
recorded earlier)
19-08-
2018 Bank A/c 550
To Accounts Receivable A/c 550
(Being recording of Cheque of $ 550 which was not
recorded earlier)
27-08-
2018 Bank A/c 9
To Accounts Receivable A/c 9
(Being Cheque of $ 1065 earlier recorded as $ 1056
now rectified)
28-08- Accounts Payable A/c 200

ACCOUNTING 24
2018
To Bank A/c 200
(Being recording of Cheque 140 of $ 200 which was
not recorded earlier)
31-08-
2018 Bank A/c 14.68
To Interest Received A/c 14.68
(Being recording of Interest Received)
31-08-
2018 Bank Fees A/c 25
To Bank A/c 25
(Being recording of Bank Fees)
(ii
i)
Bank
Ledger
Date Particulars Debit Date Particulars
Credi
t
01-08-
2018 To Opening Balance
17,24
5.00
01-08-
2018
By Accounts
Payable
19
5.00
02-08-
2018
To Accounts
Receivable
30
0.00
02-08-
2018
By Accounts
Payable-Rectified
43
0.00
02-08- To Accounts 2,18 02-08- By Accounts 3,80

ACCOUNTING 25
2018 Receivable 0.00 2018 Payable 0.00
08-08-
2018
To Accounts
Receivable - Rectified
5,80
0.00
04-08-
2018
By Accounts
Payable
51
1.00
11-08-
2018
To Accounts
Receivable - Rectified
1,33
2.00
08-08-
2018
By Accounts
Payable
66
0.00
13-08-
2018
To Accounts
Receivable
2,13
6.00
10-08-
2018
By Accounts
Payable-Rectified
50
0.00
16-08-
2018
To Accounts
Receivable - Rectified
3,20
0.00
17-08-
2018
By Accounts
Payable
87
0.50
19-08-
2018
To Accounts
Receivable - Rectified
55
0.00
22-08-
2018
By Accounts
Payable
3,14
0.00
24-08-
2018
To Accounts
Receivable
3,20
0.00
24-08-
2018
By Accounts
Payable
1,26
6.00
27-08-
2018
To Accounts
Receivable - Rectified
1,06
5.00
28-08-
2018
By Accounts
Payable-Rectified
20
0.00
29-08-
2018
To Accounts
Receivable
1,20
0.00
31-08-
2018
By Accounts
Payable
97
2.00
31-08-
2018
To Accounts
Receivable
1,60
0.00
31-08-
2018
By Bank Fees -
Rectified
2
5.00
31-08-
2018
To Accounts
Receivable - Rectified
1
4.68
31-08-
2018 By Closing Balance
27,25
3.18
39,82
2.68
39,82
2.68
Answer 5:

ACCOUNTING 26
The following are the necessary calculations:
01-Jul-
16 Equipment
8,00,00
0.00
To Cash
8,00,00
0.00
(being purchase of equipment)
30-
Jun-17 Depreciation expense
1,52,00
0.00
Carrying
value 648000
To Accumulated
depreciation- equipment
1,52,00
0.00
(being depreciation expense)
30-
Jun-18 Depreciation expense
99,66
6.67
Carrying
value
548333.
3333
To Accumulated
depreciation- equipment
99,66
6.67
(being depreciation expense)
31-
Dec-
19 Cash
50,00
0.00
Loss on sale
4,98,33
3.33
To Equipment 5,48,33

ACCOUNTING 27
3.33
(being sale of equipment)
References:
‘The employee strongly denied the evidence’. (2019). Retrieved from
https://www.news.com.au/finance/work/at-work/from-freebies-for-mates-to-150000-
fraud-employee-theft-costs-australian-business-billions/news-story/
ac7b41f93ace63b20ff99b5e3d1b712a
Internal Control Procedures for the Receipt of Cash. (2019). Retrieved from
https://work.chron.com/internal-control-procedures-receipt-cash-6735.html
'Serious breach of trust': Police arrest woman accused of fraud against NAB. (2019).
Retrieved from https://www.abc.net.au/news/2019-03-01/nsw-police-arrest-woman-
accused-of-nab-fraud/10861092
Why cloud accounting is good for business | Xero. (2019). Retrieved from
https://www.xero.com/id/resources/small-business-guides/cloud-accounting/cloud-
accounting-business/