# First In First Out Inventory Accounting - Example

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Hey everyone. In this video we're going

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to be doing FIFO

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for the delta company, so it's the exact

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same problem it's just we're using a

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different method for inventory costing,

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uh so you're going to see a lot of

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simulators, so much so that I'm just

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going to go ahead and put the initial

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to journal entries because they're the

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exact same. It doesn't matter what method

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you use for inventory costing

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the journal entries for the inventory

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being purchased doesn't change

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the only thing it really changes is the

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cost of goods sold entry

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as you'll see in a minute. So now let's

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get into it we're

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now down to december 20th where we sell

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29 at 50. I'm going to go ahead and put

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my journal entry that I know

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is going to be cash sales revenue cost

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of goods sold in

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inventory I'm not going to worry about

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the numbers because I'm going to

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calculate those in a minute

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I just want to go ahead and set myself

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up with what I already know.

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So now let's get into the sales revenue

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side sales revenue is not going to

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change

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sales revenue is what we sold for

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however much we sold it for

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uh so we sold 29 at 50 a piece

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that's going to remain at 1450, so again

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I'm just going to put that up there this

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is the same.

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So notice everything up to this point

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has been the same

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if you looked at this from the specific

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identification that you you just watched

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hopefully

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um not too long ago. This up to this

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point is the same

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the only difference is the number that

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you put next to cogs

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and inventory as well as the gross

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profit in the ending inventory changes

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as well but

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for journal entry purposes that's the

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only thing it changes.

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So now let's try to go into figuring out

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okay what is our cogs

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using FIFO and so we need to know how

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many we're going to expense well we sold

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29, so that's how many we're going to

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expense

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29 units, and that paragraph that talks

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six units came from then that's

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irrelevant now because I don't care

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where they came from

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I'm assuming that the first ones that I

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purchased

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are going to be the first ones to leave.

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So if I have to

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expense 29 of them then the first place

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I'm going to look is the very first

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place that I had some which is the

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beginning inventory

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and I'm going to take all nine of those.

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So 9

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at 25 that's going to give me 225

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and again just like I did with the

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specific specific identification

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I'm going to put a little slash through

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the nine the only difference is I don't

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have any more of those

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because I've used all nine of them but I

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haven't hit 29 units yet, so the next

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place I'm gonna go is the next step down

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or the next purchase

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which is the 16, and of those 16 I'm

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going to take all 16

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at 27 that's going to give me 432,

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again I'm a little slash mark next

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through or next to or

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through I should say 16 purchases

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because I don't have any of those

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anymore

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I've got zero of those. Now of the ones

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that I've expensed so far

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9 and the 16 that's only given me 25 I

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still need four more,

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so the place that I'm going to draw from

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next is the next purchase

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and I'm going to pull four of those

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that's going to give me my 29 and those

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four are going to be 30,

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a piece multiply that out that's going

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to give me 120,

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put a little slash through 22 because I

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don't have 22 anymore remember we took

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four of those so that's going to leave

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me 18.

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Now I can add up all of the 29 units

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that I have expensed

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that's going to give me a total of 777,

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that's my cogs for

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doing it the FIFO method so I will put

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77 or 777

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next to cogs and inventory my journal

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entry and now I can go into finishing

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up what the problem asks for computing

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cogs, well we've already said at 777.

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Computing gross profit we know again

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gross profit is sales revenue minus cogs

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so my sales revenue is one thousand four

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fifty my cogs is 777,

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so if I subtract that out that's going

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to give me a gross profit of

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673, that's my gross profit.

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Last thing I need to have is my ending

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inventory, I only really have to look for

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one place in ending inventory because

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that's the only inventory I have left

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which is from the last purchase so my

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ending inventory is going to be those

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remaining 18

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from the october purchase at 30 dollars

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a piece,

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so if I multiply that out that's going

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to give me 550.

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So hopefully this made sense hopefully

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this was uh pretty straightforward

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I've found that students tend to like

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the FIFO,

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methods and such because they're pretty

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sense

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hopefully you enjoyed it but you take

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care.