PERPETUAL INVENTORY Weighted Average Assumption Created 2010 By Michael Worthington Elizabeth City State University Periodic versus Perpetual Periodic Inventory means that the value of the inventory is calculated and adjusted at the ______ of the period Perpetual Inventory means that the value of the inventory is computed at the end of each transaction “Perpetual” means that the records are continually updated, rather than adjusted at the end of the period Weighted Average First total the number of items in inventory Then total the cost of the inventory (Goods Available for Sale) Weighted Average Cost per Unit = Total Cost ÷ Total Number of Items Always carry out calculations to 3 decimal places
3 Computations for Weighted Average 1. W.avg Cost per unit = Total Cost ÷ Total Units Always carry out calculations to 3 decimal places 2. Cost of Goods Sold = #sales x W.avg Cost per unit 3. Cost of Remaining Inv = #Inv x W.avg Cost per Unit Check Figure: Cost of Goods Sold plus Cost of Remaining Inventory = Total Cost of Goods Available for Sale Perpetual Weighted Avg Example Records indicated following just prior to sale of 30 units on June 20 th Date Beg Inv. June 5 June 15 TOTAL # 10 24 20 54 Unit Cost Total Cost 2.20 2.25 2.30 22 54 46 122 Weighted Average Cost per Unit = $122 ÷ 54 = $2.259 Cost of Goods Sold = 30 units x 2.259 = $67.77 Remaining Inventory = 24 units x 2.259 = $54.23 Total Cost of Goods Available for Sale = ? Journal Entries for Perpetual Method Journal entry to record Cost of Sales for 30 units: Date June 20 Account title Debit Credit Cost of Goods Sold Inventory Journal entry to record Sales of 30 units at $4 each: Date June 20 Account title Accounts Receivable Sales Both journal entries are needed: (1) sales and (2) cost of goods sold
Debit Credit Perpetual Weighted Average Continuation Then 30 more units were purchased on June 25 th for $2.32 per unit and 40 units were sold on 30 th with 14 units of remaining inventory (54 ­ 40 = 14) Date # Inventory June 25 TOTAL Unit Cost Total Cost 24 30 2.259 2.320 54.23 69.60 Weighted Average Cost per Unit = $123.83 ÷ 54 = $2.293 Cost of Goods Sold = 40 units x 2.293 = $91.72 Remaining Inventory = 14 units x 2.293 = $32.11 Total Cost of Goods Available for Sale = $123.83 Journal Entries Journal entry to record Cost of Sales for 40 units: Date June 30 Account title Debit Credit Cost of Goods Sold Inventory Journal entry to record Sales of 40 units at $4 each: Date June 30 Account title Debit Credit Accounts Receivable Sales Both journal entries are needed: (1) sales and (2) cost of goods sold New Problem Inventory records indicated the following just prior to the sale of 10 units on Aug 18 th Date # Beg Inv. August 5 August 15 TOTAL 5 10 8 23 Unit Cost Total Cost 1.20 1.30 1.50 Weighted Average Cost per Unit = Cost of Goods Sold for 10 units = Cost of remaining inventory =
6 13 12 $31 Journal Entries Journal entry to record Cost of Goods Sold for 10 units: Date Aug 18 Account title Debit Credit Cost of Goods Sold Inventory Journal entry to record Sales of 10 units at $2 each: Date Aug 18 Account title Debit Credit Accounts Receivable Sales Both journal entries are needed: (1) sales and (2) cost of goods sold Check Figure Date # Beg Inv. August 5 August 15 TOTAL 5 10 8 23 Unit Cost Total Cost 1.20 1.30 1.50 6 13 12 $31 $17.52 Inventory + $13.48 Cost of Goods Sold = $31 To Thine Own Self Be True Then you can be false to no man Shakespeare's “Hamlet”