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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we had nine already in-house that
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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.