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A business had 50 units in inventory on 1 Nov that had been valued at $8 per unit, on 8 Nov they bought 100 units at a cost of $9 per unit, on 16 Nov they sold 70 units for $15 each. on 20 Nov they bought another 80 units at a cost of $10 per unit. if business uses FIFO what is the value of inventory at 30 Nov?
answer is 80 X $10=$800
80 X $9 =$720
total =$1520why wasn’t the answer spread evenly, including the opening inventory cost?
A sole trader took some goods costing $1920 from inventory for his own use. the normal selling price for the goods is $3840. which of the following journal entries would correctly record this?
Answer is Debit drawings $1920 credit purchases $1920.My question is, these goods where taken from inventory, when did they move to the purchases account? please explain sir.
First question:
Because they are using FIFO, we do not spread costs evenly. The closing inventory are the most recent purchases.
You must watch my free lectures on the valuation of inventory.
Second question:
Again, this is explained in my free lectures and you cannot expect me to type them all out here 🙂
When we buy goods we always debit purchases. If some of those goods are taken by the owner then we credit purchases – the balance remaining are the purchases that are used by the business.
The inventory account is only used at the end of the period – the inventory is counted and then it is entered into the inventory account. The owner is not going to wait until after it has been counted and entered, and then decide to take some goods 🙂
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