Average Cost Perpetual Inventory Method

This video shows how to use the average cost method to calculate Cost of Goods Sold (COGS) and ending inventory for a company that uses a perpetual inventory system.

Companies that use a perpetual inventory system update the inventory account whenever inventory is purchased or sold. Thus, a company using LIFO and a perpetual system would not wait until the end of the period before adjusting the inventory account or recording Cost of Goods Sold; instead, it would record a journal entry to reflect the change in inventory whenever a transaction involving inventory occurs. Whenever inventory is sold, the company would calculate the average cost of the inventory on hand as of that date in time (this includes purchases up until that point in the period, plus any beginning inventory) and multiply this by the number of units sold to obtain the Cost of Goods Sold for that transaction (this goes on the Income Statement). If inventory is sold again later in that same period, the company must calculate another average cost that will be used to calculate the Cost of Goods Sold to be recognized on that transaction. Because the average cost is being re-calculated and is different for each transaction, this method is often referred to as a moving average.—
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[CriscoJack]

You are coming in absolutely clutch with these videos, thank you so much! Currently learning about inventory systems and these videos have been the key to my success. Succinct and very clear, thank you!

[ml]

Best explanation, and example, my wife was having problems understanding all this, and your video helped her, and even me that have nothing to do with accounting I was able to understand it (FIFO, LIFO, Average...) Thank you

[LifeofKae]

This really helped me! Currently an accounting major at a University and these videos really help!

[Janjo]

Thank you so much, explained this much better than my professor

[hazardsurferboy]

I work with the military in a galley and this helped me study and gave a great breakdown of perpetual inventory and price averaging. Thank you so much! Only comment I really have is for the next video maybe a white background so we can see the numbers expressed a bit better. But otherwise amazing job!

[fiofio]

Thank you so much! Wonderful lesson! I finally know how to do this now!

[nicholasdedoszak]

I enjoy your videos and find them helpful to grasp concepts better however, I have found myself wishing that you would go further with your examples, the homework I have this week for example has a perpetual average cost question but it does not just have 2 purchases then one sale and you're done it has more sales and purchases and im really still confused as to how you find the average once you have a purchase after a sale and there is still a remaining balance left from previous purchases.

[atdoa]

hi, thank you for the good explanation. But do we also have to calculate the ending inventory for the perpetual method or is it just for the periodical? Because now I'm confused

[hallowrewind]

Hey um quick question, if my beginning inventory balance isn’t 0 and let’s say it’s 25 units of $297, what do I do then?

[honestbusiness]

But what happens to unit cost in the next period?

[calebbyers]

It seems like a lot of confusion could be avoided by simply using FIFO.

[MoeS]

Most easy topic explained complicated way smh 🤦‍♂️