Free ebook on inventory accounting: learn costing, valuation, COGS calculations, journal entries, adjustments, and financial statement effects.
Free ebook content
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Inventory Accounting Basics: What Inventory Is and Why It Matters
+ Exercise: A retailer starts the month with $1,000 of inventory, purchases $2,500 during the month, and ends with $700 of inventory. What amount should be recognized as Cost of Goods Sold (COGS) for the month?
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Inventory Systems: Periodic vs. Perpetual Inventory Tracking
+ Exercise: A business records purchases by debiting Inventory and, at each sale, makes two entries: one for Sales Revenue and another debiting Cost of Goods Sold and crediting Inventory. Which inventory system is it using?
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Core Formula: Computing Cost of Goods Sold and Ending Inventory
+ Exercise: If ending inventory is overstated, what is the combined effect on the financial statements (all else equal)?
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Recording Inventory Purchases: Typical Journal Entries and Source Documents
+ Exercise: Which set of source documents is matched in a three-way match to help ensure an invoice is authorized, the goods were received, and the supplier billed the correct amount?
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Recording Sales of Inventory: Revenue, COGS, and Returns
+ Exercise: A customer returns goods in resalable condition after a credit sale. Under which system and situation would you record both a revenue reduction and an immediate Inventory/COGS reversal?
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Inventory Costing Methods: FIFO and Weighted Average
+ Exercise: When unit costs are rising, which outcome best describes FIFO compared with periodic weighted average?
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Inventory Valuation Concepts: Cost, Net Realizable Value, and Write-Downs
+ Exercise: When is an inventory write-down required, and what amount should inventory be reported at afterward?
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How Inventory Affects Financial Statements: Profit, Taxes, and the Balance Sheet
+ Exercise: If ending inventory is accidentally overstated at year-end (with sales unchanged), what is the most likely effect on Year 1 financial results and the following Year 2 results, assuming Year 2 ending inventory is counted correctly?
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Period-End Procedures: Physical Counts, Cutoff, and Reconciliation
+ Exercise: At period end, which set of procedures best ensures the ending inventory figure is defensible and consistent with both physical ownership and the accounting cutoff?
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Common Inventory Adjustments and Typical Mistakes in Entries
+ Exercise: In a perpetual inventory system, a company recorded a sale on account by debiting Accounts Receivable and crediting Sales Revenue, but did not record any cost entry. Which additional entry is needed to correct this?
About the free ebook
Inventory Accounting for Beginners: Costing, Valuation, and Common Entries
Build a practical foundation in inventory accounting with this free ebook for aspiring bookkeepers, business owners, and accounting students. Learn how inventory moves from purchase to sale and how each step affects records, profit, and the balance sheet.
Understand the numbers behind inventory
Clear explanations introduce the purpose of inventory, the difference between periodic and perpetual systems, and the core relationship among beginning inventory, purchases, cost of goods sold, and ending inventory.
Record transactions with confidence
Work through typical journal entries for inventory purchases, freight, sales, returns, and adjustments. The ebook connects source documents to accounting entries so you can better understand what is recorded and why.
Apply costing and valuation principles
Explore how FIFO and weighted-average costing allocate inventory costs and influence reported cost of goods sold. Learn how cost, net realizable value, and write-downs help present inventory at an appropriate amount.
Close the period accurately
See how physical counts, cutoff procedures, and reconciliations support reliable inventory balances. Practical guidance also highlights common mistakes, including incorrect returns, missing shrinkage adjustments, and inconsistent cutoff entries.
Connect inventory to financial statements
Inventory decisions can affect gross profit, taxable income, assets, and key business measures. A capstone practice scenario brings transactions together to show their financial statement impact.
What you will gain
- A working understanding of inventory accounting terminology
- Ability to calculate cost of goods sold and ending inventory
- Awareness of common entries, adjustments, and controls
- Stronger insight into how inventory affects financial reporting
How do you calculate cost of goods sold?
Beginning inventory plus net purchases equals goods available for sale; subtract ending inventory to calculate cost of goods sold.
What is the difference between periodic and perpetual inventory systems?
Perpetual systems update inventory and cost of goods sold with each sale, while periodic systems calculate them at period end.
How does FIFO affect ending inventory and cost of goods sold?
FIFO assumes the oldest costs are sold first. In rising-cost periods, it generally produces lower COGS and higher ending inventory.
This ebook includes:
11 content chapters
Digital certificate of course completion (Free)
Exercises to train your knowledge
100% free, from content to certificate
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