Chapter 5, Problem 7PSA

To determine

Inventory: Inventory refers to the stock or goods which will be sold in the near future and thus is an asset for the company. It comprises of the raw materials which are yet to be processed, the stock which is still going through the process of production and it also includes completed products that are ready for sale. Thus inventory is the biggest and the important source of income and profit for the business.

Periodic inventory system: In periodic inventory system the changes in the stock items are reported periodically unlike recording as and when purchases or sales take place.

Cost of goods available for sale: It basically includes the cost of inventory which is ready for sale within an accounting period. It mainly includes the cost of beginning inventory as well as the stock purchased in that year and the production within that period (if any).

Cost of goods sold: Cost of goods sold is the total expenses or the cost incurred by the business during the process of manufacturing of goods and is directly related to the production. It generally includes the cost of raw material, labor and other manufacturing support costs.

First in first out: In case of First in, first out method, also known as FIFO method, the inventory which was bought first will also be the first one to be taken out.

Last in first out: In case of Last in, first out, also known as LIFO method, the inventory which was bought in the last will be taken out first.

Weighted average cost method: In this method the weighted average cost is evaluated after any purchases have been made and transactions are recorded as when purchase or sales take place.

To compute: 1. Cost of goods available for sale and number of units available for sale.
2. Cost of ending inventory and cost of goods sold under the methods mentoned below:
(a) FIFO
(b) LIFO
(c) Weighted average