INVENTORY & COST OF GOODS SOLD

WHAT IS INVENTORY & COST OF GOODS SOLD ?

Inventory is a significant current asset and is important in the calculation of net income. Some of the related terminology includes:

FIFO first in, first out. Oldest costs are expensed to the cost of goods sold, while recent costs are reported in inventory.

LIFO last in, first out. Most recent costs are expensed to the cost of goods sold, while oldest costs remain in inventory.

Periodic inventory account is dormant until it is adjusted to the proper balance at the end of the accounting period.

Perpetual inventory account is increased with each purchase and decreased with each sale. cost of goods sold beginning inventory + net purchases – ending inventory.

lower of cost or market an application of the conservatism concept; inventory is reported at the lower of cost or replacement cost (with replacement cost having a ceiling amount and a floor amount).

Replacement cost cost to replace through purchase or manufacture.