In this video, we, discuss inventory costing and specifically focus on the weighted average method under a perpetual inventory system.
The weighted average, or average cost method, is a way of calculating the cost of inventory that considers the cost of all items and the number of each item. It helps in determining the cost of goods sold and the ending inventory value. In this video, we break down how to compute the weighted average cost per unit of inventory at the time of each sale.
We begin with a simplified example, considering a company that bought three identical units of inventory and sold one unit. Learn how to compute the cost of goods sold and how to report it on the income statement and balance sheet. We also discuss when NOT to use the weighted average method. For instance, when dealing with unique items like one-of-a-kind artwork, the weighted average would not be the right fit.
Next, we walk through a more detailed example. This example demonstrates how to continually update the weighted average cost per unit with each transaction, how to calculate the cost of goods sold, and how to determine the ending inventory balance.
In the end, you will have a strong grasp on the concept of weighted average inventory costing under a perpetual inventory system and will be able to apply this knowledge in your coursework and future accounting endeavors.
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Jonathan M. Wild
www.wildaccounting.com
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