FA 32 - Inventory - FIFO Method FIXED

Summary

This instructional video script guides viewers through solving inventory problems using the FIFO (First-In, First-Out) method. It details the process of recording transactions for a perpetual inventory system, calculating cost of goods sold (COGS), sales revenue, and gross profit. The script also includes instructions for downloading a template from 'accountingworkbook.com' and emphasizes the importance of tracking inventory and journal entries for financial accounting. The video promises a follow-up on the LIFO (Last-In, First-Out) method in subsequent content.

Takeaways

• 😀 The video provides a step-by-step guide to solving inventory problems using the FIFO (First-In, First-Out) method.
• 📘 The problem and its solution can be downloaded from 'accountingworkbook.com' by clicking on the PDF link.
• 🔍 The website offers both public and members-only videos, covering every problem in the workbook.
• 📚 An inventory record template is used in the video, which can be downloaded from 'accountingworkbook.com'.
• 💼 Aberdeen Auto Mart is the company used as an example in the video, with a perpetual inventory system.
• 🗓️ The script walks through transactions for the month of May, including purchases, sales, and inventory balances.
• 🔢 The FIFO method is applied to determine the cost of goods sold (COGS) and ending inventory value.
• 📈 The video explains how to calculate sales revenue, COGS, and gross profit using the FIFO method.
• 📝 Journal entries for specific dates (May 24th and May 31st) are demonstrated, illustrating the accounting process.
• 👨‍🏫 The instructor, Tony, provides corrections and clarifications during the video to ensure accuracy.
• 🔄 The video script mentions the process of correcting mistakes, with future corrections displayed on-screen for viewers.

Q & A

Where can the workbook for the inventory problem be downloaded from?

The workbook for the inventory problem can be downloaded from 'accountingworkbook.com' by going to the website, clicking on the PDF link.

What is the purpose of the video?

The purpose of the video is to demonstrate how to solve an inventory problem using the FIFO method, including recording transactions, calculating cost of goods sold (COGS), gross profit, and creating journal entries.

What is the FIFO method?

The FIFO (First-In, First-Out) method is an inventory valuation technique that assumes the earliest acquired goods are sold first, which is used to calculate the cost of goods sold.

How does the perpetual inventory system work?

A perpetual inventory system is a method of recording inventory in real-time, updating the inventory records after each transaction, which allows for continuous tracking of inventory levels.

What are the steps involved in solving the inventory problem using the FIFO method as shown in the video?

The steps include downloading the template, entering the initial inventory, recording purchases and sales, calculating the cost of goods sold for each transaction using FIFO, determining the ending inventory value, and preparing journal entries for selected dates.

What is the significance of the running total for inventory in the template?

The running total for inventory in the template helps to keep track of the current inventory value based on the FIFO method, showing the cost of the inventory items on hand after each transaction.

How does the video explain the process of recording a purchase in the inventory record?

The video explains that when a purchase is made, the number of units and their cost per unit are recorded, and the total cost is added to the running inventory total without combining it with previous inventory costs.

What is the formula used to calculate the sales revenue in the video?

The formula used to calculate the sales revenue in the video is the number of units sold multiplied by the selling price per unit.

How is the cost of goods sold (COGS) calculated in the FIFO method?

In the FIFO method, the COGS is calculated by multiplying the cost per unit of the oldest inventory items (first purchased) by the number of units sold, for each sale transaction.

What is the process for creating journal entries for inventory transactions as shown in the video?

The process involves debiting the inventory account for the cost of the purchased items and crediting either cash or accounts payable. For sales, it involves debiting cash or accounts receivable and crediting sales revenue, and then debiting cost of goods sold and crediting inventory to remove the sold items from the books.

What is the purpose of journal entries in accounting?

Journal entries in accounting are used to record financial transactions, providing a detailed account of the changes in assets, liabilities, and equity, which helps in maintaining accurate financial records.