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Click here to review an illustrated example of the FIFO calculation. The steps illustrated in the example are recapped below.

1. Start with beginning inventory.

2. Add a layer for each purchase made.

3. Record cost of merchandise sold as sales occur and adjust layers.

4. Compute the ending inventory for the period.

Below is the data for the month of January, 2011.

1/1 Beg. Inv.	130 Units @ $9
1/8 Purchase	130 Units @ $11
1/14 Sale	104 Units
1/22 Purchase	110 Units @ $9
1/25 Sale	91 Units

Compute the FIFO layers amounts for the cost of merchandise available for sale after each purchase and sale.

After 1/8 Purchase

Layer 1 [removed] units $[removed] price per unit $[removed] value of the layer

Layer 2 [removed] units $[removed] price per unit $[removed] value of the layer

After 1/14 Sale

Layer 1 [removed] units $[removed] price per unit $[removed] value of the layer

Layer 2 [removed] units $[removed] price per unit $[removed] value of the layer

After 1/22 Purchase

Layer 1 [removed] units $[removed] price per unit $[removed] value of the layer

Layer 2 [removed] units $[removed] price per unit $[removed] value of the layer

Layer 3 [removed] units $[removed] price per unit $[removed] value of the layer

After 1/25 Sale

Layer 1 [removed] units $[removed] price per unit $[removed] value of the layer

Layer 2 [removed] units $[removed] price per unit $[removed] value of the layer

Layer 3 [removed] units $[removed] price per unit $[removed] value of the layer

Based on your answers above, complete the worksheet below.

FIFO Inventory Worksheet for Month Ending January 2011		Purchases	Cost of Merchandise Sold	Inventory Balance
1/1 Beg. Inv.	130 Units @ $9			1,170
1/8 Purchase	130 Units @ $11	$ [removed]		$ [removed]
1/14 Sale	104 Units		$ [removed]	$ [removed]
1/22 Purchase	110 Units @ $9	$ [removed]		$ [removed]
1/25 Sale	91 Units		$ [removed]	$ [removed]
Total		$ [removed]	$ [removed]	$ [removed]

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Recording Changes in Inventory under FIFO Valuation

Under the perpetual system, two journal entries are are required to record sales; one to record the sale and one to record the cost of merchandise sold. Click on the links below to review the journal entries for purchases and sales transactions.

Purchase

Sales

After a purchase or sale occurs, the transaction must be recorded or journalized. In the following journal, record the purchases and sales for the month assuming that all inventory purchases were made with cash and all sales were made on account at a fixed unit price of $22 per unit. There are several facts to remember:

(1) All inventory is purchased with cash, and cash only.
(2) All sales are made on account, and on account only.
(3) When recording sales, record the revenue portion of the transaction first.

Not sure about the account title? Click here to view the chart of accounts.

+ Assets

+ Liabilities

+ Equity

+ Revenues/Gains

+ Expenses/Losses

GENERAL JOURNAL

page

DATE

DESCRIPTION

DOC.
NO.

POST.
REF.