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# Inventories: Measurement

Spencer Company Inventory Transactions For the Month of September 2000

9/1/00 9/10/00 9/25/00 9/30/00

Beginning inventory Purchase of merchandise Purchase of merchandise Goods available for sale

Cost of goods sold:

9/1/00 9/10/00 9/25/00

Beginning inventory Purchase of merchandise Purchase of merchandise Cost of goods sold

Ending Inventory:

9/25/00

Purchase of merchandise

# Date

FIFO Cost Flow Assumption

Transaction Units

2,000 500 1,000 3,500

2,000 500 300 2,800

700

\$10.00

\$20,000

\$11.00

5,500

\$12.50

3,750

\$29,250

\$12.50

\$8,750

\$10.00

\$20,000

11.00

5,500

12.50

12,500

\$38,000

# Total

Last-In, First-Out (LIFO) Under LIFO it is assumed that the cost of goods sold reflect the most recently purchased merchandise. The ending inventory in the balance sheet contains costs that reflect beginning inventory and possibly merchandise purchased early in the accounting period. The inventory method has an impact on the calculation of ending inventory and cost of goods sold.

• Periodic inventory system

If the entity is using a periodic inventory system cost of goods sold is calculated based on the most recently purchased merchandise.

Example: Assuming the same facts as above the cost of goods sold and ending inventory using the Periodic Inventory and applying the LIFO cost flow assumption is as follows:

## F:\Teaching\3321\web\module4\c8\tnotes\c8a.doc

3/12/2007

8

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