Hello everyone. Welcome to chapter five,
and in this video we're going to be
doing an example using specific
identification
to deal with inventory costing. I'm going
to show you how
I normally do it based on the
information that's given and the way
it's provided.
It just made sense to me I've always had
to find different ways to
figure things out to where it made sense
to me and kind of different
processes in order to figure them out
and so I'm going to show you mine this
may not work for you but it kind of gets
to the point across hopefully it will
help you a little bit in understanding
this.
So we're going to be dealing with delta
company and delta company has the
following beginning inventory and
purchases
and sales for the year, and it gives it
to us and then it says based on delta's
records we know that
of the 29 units sold six of them came
from the inventory that was already
there at the beginning,
12 of them came from the inventory that
was purchased on april 15th,
and 11 of them came from the inventory
purchased on october 10th.
Now it's important for you to understand
that that's what makes specific
identification what it is,
is we know exactly where they came from
what we sold we know exactly what batch
they came from and how much they cost us,
so that paragraph for this problem is
super important, and then it asks us to
compute the total cost of goods sold, the
gross profit, and the ending inventory
we're also going to do the journal
entries for this, so let's begin.
So 1-1 it says the beginning inventory
we had nine already in-house that
those nine cost us 25 apiece,
now we're not going to do a journal
entry for that because they're already
in our warehouse they're beginning
inventory and remember we do not do
journal entries for beginning amounts uh
we only do for the
the additions of so now we're going to
move to
april 15th where we had our first
purchase of the year,
and it was for 16 units at 27 apiece,
so if we multiply that out 16 times the
27
that's going to give us 432, and so now
we know how much it cost us in total
we can do our journal entry, so 415 we
increased our inventory
by 432 and we decreased cash because
that's how we paid for it
for 432 as well that takes care of that
date. Now we go to october 10th
where we had another purchase of 22
units
at 30 a piece, and so if we multiply that
again
that's going to give us 660, so it lets
us know how much our inventory is worth
so we can do our journal entry,
so 1010 our inventory goes up by
660, and then we're going to credit cash
because our cash goes down
by 660. All right, that takes care of
that one.
Now we get to december 20th now this is
our sale
we've sold the inventory so I'm going to
go ahead and begin
by getting my journal entry ready I know
what it's supposed to look like so I'm
going to put 2020
I'm going to put cash and sales revenue
and then I'm also going to go ahead and
put cost of goods sold
and inventory, that's my two part.
So now we can go and calculate our sales
revenue in order to do that we just need
to know how much we sold
uh and what we sold it for, so we have uh
sold 29 units and those 29 units we sold
at 50
a piece so if we multiply that out
that's going to give me a total sales
revenue of 1450,
so I go ahead and put that into my
journal entries so 1450, 1450
Next to cash and sales revenue next, I
have to calculate my cost of goods sold
in order to do that I need to know how
much each of the the units that I
sold cost me not what I what I uh
sold them at but what they cost me so in
order to do that
I need to know how many I actually have
to expense I used
29 so I have to expense 29. Now again
we're doing specific notifications so we
know exactly where those 29 units came
from
so starting with the first one it says
that we knew that six units came from
the inventory at the very beginning,
so that's where I'm going to start. Let's
say I want to expense six units
and those six units were at 25 dollars a
piece so if I multiply that out that's
going to give me a total of
150, now before I move on to the next
number I'm going to go ahead and clean
up some stuff because if you look at the
top problem
I don't have nine at 25 in my beginning
inventory anymore because I took six of
them out,
so I'm going to put a little slash and
tell myself, okay, I still have three of
those left,
okay, again I'm just setting myself up
for later on in the problem as well.
All right. So the next one is I know we
sold 12
out of the april batch so I'll take 12
and those 12 cost me 27 a piece multiply
that out that's going to be 324,
again I know I don't have 6 anymore at
the top of the 16
anymore at the top of the problem I'm
going to take
you know slash that out I have 4
remaining, if I had 16 I sold 12 of them
I have four remaining.
All right. And I also know that 11 of
them came from the october batch
so 11 those 11 cost me 30
a piece so multiply that out that's
going to give me 330,
again I'm going to put a little slash
mark across 22 because I don't have 22
anymore I now have 11 because I sold 11
of them,
so now I'm cleaned up at the top as well.
I can add up those three numbers at the
bottom
the 150, the 324, and the 330, and that is
going to give me a total of 804
and that is my total cogs for this sale,
that's what it cost me
to sell those 29. So I can put that into
the journal entry
uh cogs of 804, an inventory of 804,
and now I can finish up the problem it
asks us to compute the
cost of goods sold which we did cost of
goods sold was 804,
it also asked us to compute the gross
profit and we know gross profit
equals sales revenue minus cogs
and so we just put the numbers in there.
So our sales revenue was 14.50,
cogs was 804,
subtract the two that's going to give me
a gross profit of
646, that's my gross profit.
The last thing I want to do is find out
what my ending inventory is going to be,
my ending inventory is what I still have
left in the the warehouse
and that's why I cleaned up that top
piece I still have
an ending inventory three at 25
that gives me 75. I have four
at 27 multiply that out that's going to
give me one
108, and then 11 at 30
that's going to give me 330. If I add
all that up that's going to give me an
ending inventory balance of 513.
So that's how you do a problem dealing
with specific identification when you
have all your purchases at one time and
then the sale at the very end.
Hopefully that made sense to you,
hopefully you enjoyed it. You all take
care.