ACCT 212 Week 5 Discussion Assignment: Inventory
Management
Discuss with examples the two methods of inventory control. Which method do you think is better for
a retail store with several items of small value?
Inventory accounting consist of two main systems: periodic, and perpetual. Periodic means that items
are accounted for by hand, then priced at different intervals. I believe this method would be better for a
retail store with several items of small value. This is because the store can count and price inventory
periodically to determine inventory quantities, and keep a record of inventory purchased, rather than a
continuing record of each small value item it sells. The Cost of Goods Sold is then calculated by using the
formula: Beginning Inventory + Purchases − Ending Inventory = Cost of Goods Sold.
A perpetual inventory system uses computer software and barcodes to keep a running record of
inventory on hand, purchased, and sold. When a business purchases inventory, employees run items
through a scanner which reads the barcode on them and adds them to the inventory account as well as
to accounts payable. When items of inventory are sold, they are scanned again. The company’s computer
system records the sale, the cost of goods sold, and updates the inventory, removing the item from the
company’s records, all in one step. (Thomas, Tietz, & Jr, 2018, p. 310).
Reference
Thomas, C. W., Tietz, W. M., Jr, W.T. H. Financial Accounting. (2018). Retrieved from
https://devry.vitalsource.com/#/books/9780135498064/epubcfi/6/180[;vnd.vst.idref=P70010148600000
0000000000000712D]!/4/2[P700101486000000000000000000712D]/26[P700101486000000000000000
000720B]/2/2[P700101486000000000000000004EB1F]@0:0.00
Explain to your classmates what the FIFO inventory method is and how it affects Cost of goods sold
and inventory valuation?
Each inventory method can have a different impact on reported profits, income taxes, and cash flow.
Therefore, companies select their inventory method very carefully. To compute the cost of goods sold
and the cost of ending inventory still on hand, an organization must assign a unit cost to the items. To do
so, a business can use the first-in, first-out (FIFO) inventory method. Under the FIFO (first-in, first-out)
method, the first costs into inventory are the first costs assigned to the cost of goods sold.
When inventory costs are increasing, first-in, first-out (FIFO) cost of goods sold (COGS) is lowest because
it’s based on the oldest cost. Therefore, gross profits would be the highest. Also, FIFO ending inventory
(EI) would be highest because it’s based on the most recent costs, which are high. On the contrary, when
inventory costs are decreasing, FIFO COGS is highest because the oldest costs are high, and FIFO EI is
lowest because the most recent costs are low. (Thomas, Tietz, & Jr, 2018, p. 314).
Reference
Thomas, C. W., Tietz, W. M., Jr, W.T. H. Financial Accounting. (2018). Retrieved from
https://devry.vitalsource.com/#/books/9780135498064/epubcfi/6/182[;vnd.vst.idref=P70010148600000
000000000000072A8]!/4/2[P70010148600000000000000000072A8]/8[P7001014860000000000000000
0072B0]/14[P70010148600000000000000000072F8]/4[P700101486000000000000000004EBEE]/2[P700
This study source was downloaded by 100000801755870 from CourseHero.com on 04 -04-2022 07:34:05 GMT -05:00
https://www.coursehero.com/file/56850454/ACCT212-Week-5-Discussiondocx/
Management
Discuss with examples the two methods of inventory control. Which method do you think is better for
a retail store with several items of small value?
Inventory accounting consist of two main systems: periodic, and perpetual. Periodic means that items
are accounted for by hand, then priced at different intervals. I believe this method would be better for a
retail store with several items of small value. This is because the store can count and price inventory
periodically to determine inventory quantities, and keep a record of inventory purchased, rather than a
continuing record of each small value item it sells. The Cost of Goods Sold is then calculated by using the
formula: Beginning Inventory + Purchases − Ending Inventory = Cost of Goods Sold.
A perpetual inventory system uses computer software and barcodes to keep a running record of
inventory on hand, purchased, and sold. When a business purchases inventory, employees run items
through a scanner which reads the barcode on them and adds them to the inventory account as well as
to accounts payable. When items of inventory are sold, they are scanned again. The company’s computer
system records the sale, the cost of goods sold, and updates the inventory, removing the item from the
company’s records, all in one step. (Thomas, Tietz, & Jr, 2018, p. 310).
Reference
Thomas, C. W., Tietz, W. M., Jr, W.T. H. Financial Accounting. (2018). Retrieved from
https://devry.vitalsource.com/#/books/9780135498064/epubcfi/6/180[;vnd.vst.idref=P70010148600000
0000000000000712D]!/4/2[P700101486000000000000000000712D]/26[P700101486000000000000000
000720B]/2/2[P700101486000000000000000004EB1F]@0:0.00
Explain to your classmates what the FIFO inventory method is and how it affects Cost of goods sold
and inventory valuation?
Each inventory method can have a different impact on reported profits, income taxes, and cash flow.
Therefore, companies select their inventory method very carefully. To compute the cost of goods sold
and the cost of ending inventory still on hand, an organization must assign a unit cost to the items. To do
so, a business can use the first-in, first-out (FIFO) inventory method. Under the FIFO (first-in, first-out)
method, the first costs into inventory are the first costs assigned to the cost of goods sold.
When inventory costs are increasing, first-in, first-out (FIFO) cost of goods sold (COGS) is lowest because
it’s based on the oldest cost. Therefore, gross profits would be the highest. Also, FIFO ending inventory
(EI) would be highest because it’s based on the most recent costs, which are high. On the contrary, when
inventory costs are decreasing, FIFO COGS is highest because the oldest costs are high, and FIFO EI is
lowest because the most recent costs are low. (Thomas, Tietz, & Jr, 2018, p. 314).
Reference
Thomas, C. W., Tietz, W. M., Jr, W.T. H. Financial Accounting. (2018). Retrieved from
https://devry.vitalsource.com/#/books/9780135498064/epubcfi/6/182[;vnd.vst.idref=P70010148600000
000000000000072A8]!/4/2[P70010148600000000000000000072A8]/8[P7001014860000000000000000
0072B0]/14[P70010148600000000000000000072F8]/4[P700101486000000000000000004EBEE]/2[P700
This study source was downloaded by 100000801755870 from CourseHero.com on 04 -04-2022 07:34:05 GMT -05:00
https://www.coursehero.com/file/56850454/ACCT212-Week-5-Discussiondocx/
