ACG 2021 - CHAPTER 5 PERPETUAL INVENTORY SYSTEM A perpetual inventory system seeks to track inventory levels in real-time throughout the entire inventory cycle (purchase, storage, sale, replace). GAAP allows companies to choose from three different inventory cost flow methods to track these inventory amounts. First-In-First-Out (FIFO): Assumes that the oldest purchased inventory items are sold first. Last-In-First-Out (LIFO): Assumes that the newest purchased inventory items are sold first. Average Cost Method: Uses a weighted average cost calculation to determine COGS. Technically, there is a fourth method called "Specific Identification" that assumes that the company can easily identify exactly which items are being sold. When completing problems in this chapter, you must pay close attention to how the problem is constructed. For instance, some problems are setup like the one below where a beginning inventory level is given and then a series of inventory purchases throughout the month. These types of problems can easily be solved using a basic chart like the one shown below. Instructions: Use the information below to solve determine COGS and Ending Inventory for each of the 3 inventory methods (FIFO, LIFO and Avg. Cost). Start by just reviewing the FIFO completed example. Then, complete the LIFO problem on your own. EXERCISE ONE: The inventory records of Synergy Prosthetics indicate the following. DATE UNITS PER TOTAL UNIT July 1 Beg Inventory 6 units $60 $360 July 8 Purchase 5 units $67 335 July 15 Purchase 10 units $70 700 July 26 Purchase 5 units $85 425 AVAILABLE 26 units $1,820 FOR SALE On July 29th, Synergy sold 18 units at a sales price of $125 each. Compute Cost of Goods Sold and Ending Inventory using each of the following methods: FIFO, LIFO & Weighted Average Cost. 1