sold or used during an accounting period seldom
correspond exactly to the goods bought or produced
during that period, the physical inventory either
increases or decreases. The cost of all the goods
available for sale or use should be allocated
between the goods that were sold or used and those
that are still on hand. The cost of goods available
for sale or use is the sum of the cost of the goods
in the hand at the beginning of the period and the
cost of the goods acquired or produced during the
period. The cost of goods sold is the difference
between the cost of goods available for sale during
the period and the cost of goods on hand at the end
of the period.
Computation of Cost of Goods Sold
Beginning inventory. Jan1.
Cost of goods acquired or
produced during the year
Total cost of goods available
Ending inventory, Dec. 31
Cost of goods sold during the
The valuation of
inventories can be a complex process that requires
determination of the following:
goods to be included to inventory (who owns the
goods? - goods in transit, consigned goods,
special sales agreements).
The cost to be
included in inventory (product vs. period costs,
treatment of purchase discount).
The cost flow
assumption to be adopted (specific
identification, average cost, FIFO, LIFO,