A company that uses perpetual inventory system made the following cash purchases and sales:
January 1 Purchased 100 units at $10 per unit.
February 5: Purchased 60 units at $12 per unit.
March 16: Sold 40 units for $16 per unit.
Prepare general journal entries to reord the March 16 sales assuming a FIFO method is used
PLEASE HELP THE TEACHER IS HARD TO FOLLOW
Please see your next post, which I saw first.
Sra
To record the March 16 sales using the FIFO (First-In, First-Out) method, we need to understand the order in which the units were purchased. Based on the transactions provided, the units were purchased in the following order:
1. January 1: 100 units
2. February 5: 60 units
Since the March 16 sale involved 40 units, we will assume that the units sold came from the January 1 purchase first, followed by the remaining units from the February 5 purchase.
Here are the general journal entries to record the March 16 sales:
1. To record the cost of goods sold:
Date: March 16
Account: Cost of Goods Sold (Expense account)
Debit: 400 (40 units x $10 per unit)
Account: Inventory (Asset account)
Credit: 400 (40 units x $10 per unit)
2. To record the revenue from the sale:
Date: March 16
Account: Accounts Receivable (Asset account)
Debit: 640 (40 units x $16 per unit)
Account: Sales Revenue (Revenue account)
Credit: 640 (40 units x $16 per unit)
These entries reflect the cost of goods sold and the revenue generated from the sale of 40 units using the FIFO method.
To prepare the general journal entries using the FIFO (First-In-First-Out) method, we need to take into account the order in which the inventory was purchased. FIFO assumes that the first items purchased are the first ones sold.
1. Determine the Cost of Goods Sold (COGS) based on the FIFO method:
- First, we need to identify the earliest purchase(s) of inventory that will be used to calculate the COGS. In this case, the January 1 purchase of 100 units at $10 per unit will be used first.
- Calculate the COGS for the sold units: COGS = Number of units sold x Unit cost
COGS = 40 units x $10 per unit = $400
2. Record the journal entries for the sale of 40 units on March 16 using the FIFO method:
- We need to reduce the inventory and record the cost of goods sold.
March 16:
Debit Accounts Receivable (or Cash) $640 [40 units x $16 per unit]
Credit Sales Revenue $640 [40 units x $16 per unit]
Debit Cost of Goods Sold $400 [COGS calculated above]
Credit Inventory $400
Note: Make sure to adjust the inventory balance after the sale by reducing it by the cost of goods sold.
This is one way to record the journal entries for the March 16 sales using the FIFO method. However, it is always recommended to verify with your teacher or consult the accounting principles being taught in your specific class.