fifo lifo and weighted average cost
DESCRIPTION
ACCOUNTINGTRANSCRIPT
ACCOUNTINGFIFO,LIFO
AND WEIGHTED AVERAGE COST
Group Members
• Aqeel Butt 12002001009• Salman 12002001019• Junaid Muzaffar 12002001011• Hammad Saeed Malik 12002001003
INTRODUCTION• At the end of each period (month or year)
one should do a physical inventory count to determine the number of inventory on hand.
• Then you need to place a value on the goods.
• One would think this would be easy - the value of the goods is simply how much they originally cost. Unfortunately there is a bit more to it than just this.
EXAMPLE• Awais runs a candy shop. He enters into the
following transactions during July:• July 1 Purchases 1,200 lollypops at $1 each.
July 13 Purchases 500 lollypops at $1.20 each.July 14 Sells 700 lollypops at $2 each.
• First of all, how many lollypops does he have at the end of the month?
• Answer:1,200 + 500 – 700 = 1,000 lollypops
WAYS OF VALUING A STOCKThere are three ways that Awais can
use to value his stock1: FIFO ( First in First Out)2: LIFO ( Last in First Out)3: Weighted Average
FIFO ( FIRST IN FIRST OUT)• This method assumes
that the first inventories bought are the first ones to be sold, and that inventories bought later are sold later.
USE OF FIFO METHOD• It is very common to use the FIFO method if one trades in
foodstuffs and other goods that have a limited shelf life, because the oldest goods need to be sold before they pass their sell-by date.
• Thus the first-in-first-out method is probably the most commonly used method in small business.
LIFO ( LAST IN FIRST OUT)• This method assumes
that the last inventories bought are the first ones to be sold, and that inventories bought first are sold last.
USE OF LIFO METHOD• The LIFO method is commonly used
in the U.S.A.
WEIGHTED AVERAGE• This method assumes that we sell all
our inventories simultaneously.
USE OF WAIGHTED AVERAGE METHOD
• The weighted average cost method is most commonly used in manufacturing businesses where inventories are piled or mixed together and cannot be differentiated, such as chemicals, oils, etc. Chemicals bought two months ago cannot be differentiated from those bought yesterday, as they are all mixed together.
ANY INTELLIGENT QUESTIONS??
Me! Me!