# Specific Identification of Inventory - Example

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Hello everyone. Welcome to chapter five,

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and in this video we're going to be

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doing an example using specific

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identification

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to deal with inventory costing. I'm going

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to show you how

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I normally do it based on the

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information that's given and the way

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it's provided.

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It just made sense to me I've always had

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to find different ways to

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figure things out to where it made sense

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to me and kind of different

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processes in order to figure them out

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and so I'm going to show you mine this

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may not work for you but it kind of gets

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to the point across hopefully it will

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help you a little bit in understanding

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this.

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So we're going to be dealing with delta

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company and delta company has the

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following beginning inventory and

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purchases

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and sales for the year, and it gives it

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to us and then it says based on delta's

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records we know that

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of the 29 units sold six of them came

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from the inventory that was already

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there at the beginning,

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12 of them came from the inventory that

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was purchased on april 15th,

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and 11 of them came from the inventory

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purchased on october 10th.

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Now it's important for you to understand

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that that's what makes specific

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identification what it is,

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is we know exactly where they came from

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what we sold we know exactly what batch

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they came from and how much they cost us,

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so that paragraph for this problem is

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super important, and then it asks us to

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compute the total cost of goods sold, the

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gross profit, and the ending inventory

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we're also going to do the journal

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entries for this, so let's begin.

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So 1-1 it says the beginning inventory

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those nine cost us 25 apiece,

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now we're not going to do a journal

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entry for that because they're already

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in our warehouse they're beginning

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inventory and remember we do not do

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journal entries for beginning amounts uh

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we only do for the

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the additions of so now we're going to

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move to

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april 15th where we had our first

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purchase of the year,

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and it was for 16 units at 27 apiece,

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so if we multiply that out 16 times the

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27

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

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we know how much it cost us in total

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we can do our journal entry, so 415 we

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increased our inventory

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by 432 and we decreased cash because

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that's how we paid for it

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for 432 as well that takes care of that

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date. Now we go to october 10th

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where we had another purchase of 22

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units

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at 30 a piece, and so if we multiply that

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again

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

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us know how much our inventory is worth

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so we can do our journal entry,

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so 1010 our inventory goes up by

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660, and then we're going to credit cash

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because our cash goes down

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by 660. All right, that takes care of

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that one.

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Now we get to december 20th now this is

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our sale

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

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go ahead and begin

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by getting my journal entry ready I know

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

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going to put 2020

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I'm going to put cash and sales revenue

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and then I'm also going to go ahead and

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put cost of goods sold

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and inventory, that's my two part.

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So now we can go and calculate our sales

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revenue in order to do that we just need

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to know how much we sold

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

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sold 29 units and those 29 units we sold

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at 50

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a piece so if we multiply that out

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that's going to give me a total sales

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revenue of 1450,

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so I go ahead and put that into my

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journal entries so 1450, 1450

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Next to cash and sales revenue next, I

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have to calculate my cost of goods sold

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in order to do that I need to know how

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much each of the the units that I

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sold cost me not what I what I uh

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sold them at but what they cost me so in

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order to do that

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I need to know how many I actually have

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to expense I used

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29 so I have to expense 29. Now again

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we're doing specific notifications so we

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know exactly where those 29 units came

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from

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so starting with the first one it says

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that we knew that six units came from

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the inventory at the very beginning,

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

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say I want to expense six units

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and those six units were at 25 dollars a

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piece so if I multiply that out that's

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going to give me a total of

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150, now before I move on to the next

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number I'm going to go ahead and clean

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up some stuff because if you look at the

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top problem

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I don't have nine at 25 in my beginning

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inventory anymore because I took six of

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them out,

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so I'm going to put a little slash and

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tell myself, okay, I still have three of

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those left,

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okay, again I'm just setting myself up

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for later on in the problem as well.

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All right. So the next one is I know we

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sold 12

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out of the april batch so I'll take 12

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and those 12 cost me 27 a piece multiply

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that out that's going to be 324,

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again I know I don't have 6 anymore at

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the top of the 16

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anymore at the top of the problem I'm

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going to take

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you know slash that out I have 4

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remaining, if I had 16 I sold 12 of them

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I have four remaining.

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All right. And I also know that 11 of

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them came from the october batch

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so 11 those 11 cost me 30

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a piece so multiply that out that's

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going to give me 330,

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again I'm going to put a little slash

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mark across 22 because I don't have 22

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anymore I now have 11 because I sold 11

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of them,

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

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I can add up those three numbers at the

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bottom

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

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going to give me a total of 804

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and that is my total cogs for this sale,

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that's what it cost me

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to sell those 29. So I can put that into

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the journal entry

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uh cogs of 804, an inventory of 804,

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and now I can finish up the problem it

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asks us to compute the

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cost of goods sold which we did cost of

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goods sold was 804,

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it also asked us to compute the gross

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profit and we know gross profit

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equals sales revenue minus cogs

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and so we just put the numbers in there.

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So our sales revenue was 14.50,

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cogs was 804,

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subtract the two that's going to give me

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a gross profit of

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646, that's my gross profit.

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The last thing I want to do is find out

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what my ending inventory is going to be,

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my ending inventory is what I still have

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left in the the warehouse

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and that's why I cleaned up that top

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piece I still have

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an ending inventory three at 25

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that gives me 75. I have four

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at 27 multiply that out that's going to

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give me one

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108, and then 11 at 30

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

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all that up that's going to give me an

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ending inventory balance of 513.

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So that's how you do a problem dealing

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with specific identification when you

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have all your purchases at one time and

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then the sale at the very end.

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Hopefully that made sense to you,

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hopefully you enjoyed it. You all take

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care.