Inventory Valuation Methods in Accounting

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