Spencer Company Inventory Transactions For the Month of September 2000
Beginning inventory Purchase of merchandise Purchase of merchandise Goods available for sale
2,000 500 1,000 3,500
$10.00 11.00 12.50 $10.86
Cost of goods sold: Merchandise sold in September
Ending Inventory: Merchandise on hand
Analysis of weighted average: Goods available for sale: Total cost Total units Weighted average
Date 9/1/00 9/10/00 9/25/00 9/30/00
Periodic Inventory System, Weighted Average
Total $20,000 5,500 12,500 $38,000
Perpetual inventory system
If the entity is using the perpetual inventory system the calculation is based on the moving- average of the number of units and their respective costs after each purchase. This is called the moving-average method.
Example: Using the same information as above but assuming that Spencer Company uses the perpetual inventory system the calculation of cost of goods sold and ending inventory is much different. Each time the company purchases merchandise the new moving weighted average has to be recalculated. This average cost is then used to calculate the cost of goods sold on any subsequent sales transactions.