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Specific Identification of Inventory - Example

Written by Jason Gordon

Updated at June 15th, 2021

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0:00:00.560,0:00:06.080

Hello everyone. Welcome to chapter five,


0:00:04.240,0:00:07.839

and in this video we're going to be


0:00:06.080,0:00:08.880

doing an example using specific


0:00:07.839,0:00:11.759

identification


0:00:08.880,0:00:12.880

to deal with inventory costing. I'm going


0:00:11.759,0:00:14.880

to show you how


0:00:12.880,0:00:16.240

I normally do it based on the


0:00:14.880,0:00:17.840

information that's given and the way


0:00:16.240,0:00:20.080

it's provided.


0:00:17.840,0:00:22.080

It just made sense to me I've always had


0:00:20.080,0:00:23.840

to find different ways to


0:00:22.080,0:00:25.439

figure things out to where it made sense


0:00:23.840,0:00:27.519

to me and kind of different


0:00:25.439,0:00:28.880

processes in order to figure them out


0:00:27.519,0:00:30.720

and so I'm going to show you mine this


0:00:28.880,0:00:32.640

may not work for you but it kind of gets


0:00:30.720,0:00:33.920

to the point across hopefully it will


0:00:32.640,0:00:34.719

help you a little bit in understanding


0:00:33.920,0:00:36.000

this.


0:00:34.719,0:00:37.920

So we're going to be dealing with delta


0:00:36.000,0:00:39.520

company and delta company has the


0:00:37.920,0:00:40.719

following beginning inventory and


0:00:39.520,0:00:42.320

purchases


0:00:40.719,0:00:44.640

and sales for the year, and it gives it


0:00:42.320,0:00:45.920

to us and then it says based on delta's


0:00:44.640,0:00:48.640

records we know that


0:00:45.920,0:00:49.920

of the 29 units sold six of them came


0:00:48.640,0:00:51.360

from the inventory that was already


0:00:49.920,0:00:53.440

there at the beginning,


0:00:51.360,0:00:55.440

12 of them came from the inventory that


0:00:53.440,0:00:57.199

was purchased on april 15th,


0:00:55.440,0:00:59.280

and 11 of them came from the inventory


0:00:57.199,0:01:01.680

purchased on october 10th.


0:00:59.280,0:01:03.440

Now it's important for you to understand


0:01:01.680,0:01:04.799

that that's what makes specific


0:01:03.440,0:01:07.280

identification what it is,


0:01:04.799,0:01:09.280

is we know exactly where they came from


0:01:07.280,0:01:11.600

what we sold we know exactly what batch


0:01:09.280,0:01:15.040

they came from and how much they cost us,


0:01:11.600,0:01:17.439

so that paragraph for this problem is


0:01:15.040,0:01:19.600

super important, and then it asks us to


0:01:17.439,0:01:21.520

compute the total cost of goods sold, the


0:01:19.600,0:01:22.880

gross profit, and the ending inventory


0:01:21.520,0:01:25.040

we're also going to do the journal


0:01:22.880,0:01:26.880

entries for this, so let's begin.


0:01:25.040,0:01:29.119

So 1-1 it says the beginning inventory


0:01:26.880,0:01:32.479

we had nine already in-house that


0:01:29.119,0:01:33.600

those nine cost us 25 apiece,


0:01:32.479,0:01:35.200

now we're not going to do a journal


0:01:33.600,0:01:36.320

entry for that because they're already


0:01:35.200,0:01:38.240

in our warehouse they're beginning


0:01:36.320,0:01:40.640

inventory and remember we do not do


0:01:38.240,0:01:41.840

journal entries for beginning amounts uh


0:01:40.640,0:01:44.320

we only do for the


0:01:41.840,0:01:45.280

the additions of so now we're going to


0:01:44.320,0:01:47.200

move to


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april 15th where we had our first


0:01:47.200,0:01:52.159

purchase of the year,


0:01:48.479,0:01:54.399

and it was for 16 units at 27 apiece,


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so if we multiply that out 16 times the


0:01:54.399,0:01:58.320

27


0:01:55.280,0:01:59.920

that's going to give us 432, and so now


0:01:58.320,0:02:02.719

we know how much it cost us in total


0:01:59.920,0:02:04.560

we can do our journal entry, so 415 we


0:02:02.719,0:02:08.560

increased our inventory


0:02:04.560,0:02:09.599

by 432 and we decreased cash because


0:02:08.560,0:02:13.360

that's how we paid for it


0:02:09.599,0:02:16.800

for 432 as well that takes care of that


0:02:13.360,0:02:19.360

date. Now we go to october 10th


0:02:16.800,0:02:20.319

where we had another purchase of 22


0:02:19.360,0:02:23.200

units


0:02:20.319,0:02:23.760

at 30 a piece, and so if we multiply that


0:02:23.200,0:02:26.400

again


0:02:23.760,0:02:27.760

that's going to give us 660, so it lets


0:02:26.400,0:02:29.680

us know how much our inventory is worth


0:02:27.760,0:02:32.879

so we can do our journal entry,


0:02:29.680,0:02:35.760

so 1010 our inventory goes up by


0:02:32.879,0:02:37.040

660, and then we're going to credit cash


0:02:35.760,0:02:39.840

because our cash goes down


0:02:37.040,0:02:40.480

by 660. All right, that takes care of


0:02:39.840,0:02:43.519

that one.


0:02:40.480,0:02:44.160

Now we get to december 20th now this is


0:02:43.519,0:02:46.239

our sale


0:02:44.160,0:02:48.080

we've sold the inventory so I'm going to


0:02:46.239,0:02:51.360

go ahead and begin


0:02:48.080,0:02:52.480

by getting my journal entry ready I know


0:02:51.360,0:02:53.840

what it's supposed to look like so I'm


0:02:52.480,0:02:56.080

going to put 2020


0:02:53.840,0:02:57.200

I'm going to put cash and sales revenue


0:02:56.080,0:02:59.040

and then I'm also going to go ahead and


0:02:57.200,0:03:02.879

put cost of goods sold


0:02:59.040,0:03:05.040

and inventory, that's my two part.


0:03:02.879,0:03:06.640

So now we can go and calculate our sales


0:03:05.040,0:03:08.080

revenue in order to do that we just need


0:03:06.640,0:03:11.360

to know how much we sold


0:03:08.080,0:03:14.159

uh and what we sold it for, so we have uh


0:03:11.360,0:03:14.879

sold 29 units and those 29 units we sold


0:03:14.159,0:03:16.959

at 50


0:03:14.879,0:03:18.480

a piece so if we multiply that out


0:03:16.959,0:03:20.480

that's going to give me a total sales


0:03:18.480,0:03:22.720

revenue of 1450,


0:03:20.480,0:03:25.360

so I go ahead and put that into my


0:03:22.720,0:03:28.799

journal entries so 1450, 1450


0:03:25.360,0:03:31.519

Next to cash and sales revenue next, I


0:03:28.799,0:03:33.280

have to calculate my cost of goods sold


0:03:31.519,0:03:35.120

in order to do that I need to know how


0:03:33.280,0:03:38.720

much each of the the units that I


0:03:35.120,0:03:41.680

sold cost me not what I what I uh


0:03:38.720,0:03:43.200

sold them at but what they cost me so in


0:03:41.680,0:03:44.640

order to do that


0:03:43.200,0:03:46.400

I need to know how many I actually have


0:03:44.640,0:03:49.840

to expense I used


0:03:46.400,0:03:51.599

29 so I have to expense 29. Now again


0:03:49.840,0:03:53.519

we're doing specific notifications so we


0:03:51.599,0:03:54.239

know exactly where those 29 units came


0:03:53.519,0:03:55.760

from


0:03:54.239,0:03:57.599

so starting with the first one it says


0:03:55.760,0:03:59.280

that we knew that six units came from


0:03:57.599,0:04:00.560

the inventory at the very beginning,


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so that's where I'm going to start. Let's


0:04:00.560,0:04:04.720

say I want to expense six units


0:04:02.720,0:04:06.159

and those six units were at 25 dollars a


0:04:04.720,0:04:07.519

piece so if I multiply that out that's


0:04:06.159,0:04:10.879

going to give me a total of


0:04:07.519,0:04:12.959

150, now before I move on to the next


0:04:10.879,0:04:14.480

number I'm going to go ahead and clean


0:04:12.959,0:04:15.599

up some stuff because if you look at the


0:04:14.480,0:04:18.160

top problem


0:04:15.599,0:04:19.840

I don't have nine at 25 in my beginning


0:04:18.160,0:04:20.479

inventory anymore because I took six of


0:04:19.840,0:04:22.880

them out,


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so I'm going to put a little slash and


0:04:22.880,0:04:25.840

tell myself, okay, I still have three of


0:04:24.639,0:04:27.440

those left,


0:04:25.840,0:04:29.840

okay, again I'm just setting myself up


0:04:27.440,0:04:31.919

for later on in the problem as well.


0:04:29.840,0:04:33.199

All right. So the next one is I know we


0:04:31.919,0:04:37.520

sold 12


0:04:33.199,0:04:40.080

out of the april batch so I'll take 12


0:04:37.520,0:04:43.360

and those 12 cost me 27 a piece multiply


0:04:40.080,0:04:45.520

that out that's going to be 324,


0:04:43.360,0:04:46.880

again I know I don't have 6 anymore at


0:04:45.520,0:04:49.120

the top of the 16


0:04:46.880,0:04:50.000

anymore at the top of the problem I'm


0:04:49.120,0:04:51.919

going to take


0:04:50.000,0:04:54.880

you know slash that out I have 4


0:04:51.919,0:04:56.800

remaining, if I had 16 I sold 12 of them


0:04:54.880,0:04:58.960

I have four remaining.


0:04:56.800,0:05:01.039

All right. And I also know that 11 of


0:04:58.960,0:05:04.080

them came from the october batch


0:05:01.039,0:05:05.520

so 11 those 11 cost me 30


0:05:04.080,0:05:07.600

a piece so multiply that out that's


0:05:05.520,0:05:09.360

going to give me 330,


0:05:07.600,0:05:11.199

again I'm going to put a little slash


0:05:09.360,0:05:13.360

mark across 22 because I don't have 22


0:05:11.199,0:05:14.479

anymore I now have 11 because I sold 11


0:05:13.360,0:05:16.960

of them,


0:05:14.479,0:05:19.039

so now I'm cleaned up at the top as well.


0:05:16.960,0:05:19.440

I can add up those three numbers at the


0:05:19.039,0:05:22.800

bottom


0:05:19.440,0:05:24.880

the 150, the 324, and the 330, and that is


0:05:22.800,0:05:27.280

going to give me a total of 804


0:05:24.880,0:05:28.720

and that is my total cogs for this sale,


0:05:27.280,0:05:32.000

that's what it cost me


0:05:28.720,0:05:34.000

to sell those 29. So I can put that into


0:05:32.000,0:05:38.400

the journal entry


0:05:34.000,0:05:39.919

uh cogs of 804, an inventory of 804,


0:05:38.400,0:05:41.520

and now I can finish up the problem it


0:05:39.919,0:05:43.199

asks us to compute the


0:05:41.520,0:05:44.639

cost of goods sold which we did cost of


0:05:43.199,0:05:46.720

goods sold was 804,


0:05:44.639,0:05:49.120

it also asked us to compute the gross


0:05:46.720,0:05:53.120

profit and we know gross profit


0:05:49.120,0:05:54.639

equals sales revenue minus cogs


0:05:53.120,0:05:57.759

and so we just put the numbers in there.


0:05:54.639,0:06:00.880

So our sales revenue was 14.50,


0:05:57.759,0:06:02.479

cogs was 804,


0:06:00.880,0:06:04.840

subtract the two that's going to give me


0:06:02.479,0:06:08.080

a gross profit of


0:06:04.840,0:06:09.440

646, that's my gross profit.


0:06:08.080,0:06:11.759

The last thing I want to do is find out


0:06:09.440,0:06:13.280

what my ending inventory is going to be,


0:06:11.759,0:06:15.199

my ending inventory is what I still have


0:06:13.280,0:06:16.720

left in the the warehouse


0:06:15.199,0:06:18.319

and that's why I cleaned up that top


0:06:16.720,0:06:23.600

piece I still have


0:06:18.319,0:06:23.600

an ending inventory three at 25


0:06:23.680,0:06:29.840

that gives me 75. I have four


0:06:27.280,0:06:30.560

at 27 multiply that out that's going to


0:06:29.840,0:06:34.560

give me one


0:06:30.560,0:06:37.680

108, and then 11 at 30


0:06:34.560,0:06:39.039

that's going to give me 330. If I add


0:06:37.680,0:06:42.800

all that up that's going to give me an


0:06:39.039,0:06:44.720

ending inventory balance of 513.


0:06:42.800,0:06:46.560

So that's how you do a problem dealing


0:06:44.720,0:06:48.400

with specific identification when you


0:06:46.560,0:06:50.240

have all your purchases at one time and


0:06:48.400,0:06:51.280

then the sale at the very end.


0:06:50.240,0:06:53.880

Hopefully that made sense to you,


0:06:51.280,0:06:56.880

hopefully you enjoyed it. You all take


0:06:53.880,0:06:56.880

care.


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