COGS Part 5 (Inventory)

Quick reference

• 00:04 Let's continue our discussion on inventory.
• 00:07 So, we try to calculate the inventory and related balance all together i.e.
• 00:11 Something on the balance sheet we are trying to keep a running total of stock.
• 00:15 For that we have nothing to begin with.
• 00:18 We then make purchases, nothing to do with sales,
• 00:20 it's independent to that we just have our own purchase plan.
• 00:24 As we then make sales, we use an amount which is 2 kilos in row 100 as you
• 00:28 can see here, in this instance per sale.
• 00:31 And that gets transferred from the inventory out into cost of goods sold.
• 00:36 Hang on a minute then.
• 00:37 Well that's got something to do with that query I had before about
• 00:41 where does this go in the financial statements.
• 00:43 The purchases for the cost of goods sold account.
• 00:45 Well yes, we'll come back to that in a bit.
• 00:48 But okay, back to inventory for the time being.
• 00:51 So it's going to be nothing to start off with,
• 00:53 our purchases less our amount transferred to COGS.
• 00:56 Less any wastage, which could be wastage, spoilage, obsolescence,
• 01:00 theft, that's what we're doing.
• 01:02 Now last time out, we actually got so far.
• 01:04 We calculated that inventory balance pre-wastage.
• 01:07 We'd actually started building a control account, bizarrely in kilos.
• 01:11 And we've got our opening inventory, we've got our purchases,
• 01:14 we've got our cost of goods sold, we needed to calculate our wastage.
• 01:18 And that well, we've got the number pre-wastage.
• 01:21 So what we've done to get these numbers here we simply take this,
• 01:25 added these three numbers up, which is pre-wastage.
• 01:27 We're assuming the cost of goods sold gets transferred at
• 01:30 the beginning of the period, and therefore wastage occurs afterwards.
• 01:33 Now if the cost of goods sold transfer happens at the end of the period,
• 01:36 we would need to actually make a revision to have our wastages calculated.
• 01:40 But that depends on how you're working it out.
• 01:43 Okay, so wastage here, then, is equal to, we've already got the numbers here.
• 01:47 That's the percentage here, and we simply copy this across.
• 01:52 And it's not rocket science that we then multiply these two numbers together.
• 01:58 And the dotted line is to show we're not adding these numbers up.
• 02:01 We're multiplying them.
• 02:02 And that wastage then goes back into our control account as a negative number,
• 02:06 equals, minus, back up here to that.
• 02:09 Bang, done.
• 02:10 And we have our control account.
• 02:12 Well, aren't we good.
• 02:13 We've got this.
• 02:13 We can now put that into our financial statements.
• 02:15 Well, maybe not.
• 02:18 We've put our control account in kilos because
• 02:20 we need to keep a running total of our stock.
• 02:22 But we can't to the financial statements unless the financial system for
• 02:27 actually bartering has changed.
• 02:28 And we can actually do it in kilos rather than dollars.
• 02:31 Then I'd be a very rich man based on my body mass index.
• 02:34 But less about that shall we and carry on.
• 02:37 What I need to do is create a corresponding
• 02:41 controller account in dollars.
• 02:43 So instead of opening inventory in kilos,
• 02:44 we'll have opening inventory in US thousands of dollars and so on.
• 02:49 And we need to bring this in.
• 02:50 Now, notice the closing inventory.
• 02:53 I can actually bring this in from the opening balance sheet.
• 02:55 We've got the inventory balance here, let's put that in.
• 02:58 And this reflects an important point.
• 03:00 Ideally, we shouldn't have had a blank cell here.
• 03:04 We should have actually had a value, which is the opening balance in kilos.
• 03:10 So somebody would need to give us that.
• 03:12 Now it doesn't matter in this case, cuz it was zero, but just watch out for that.
• 03:16 Now opening inventory is simply equal to the previous period's closing balance,
• 03:19 copy it across.
• 03:21 And the summation, as always, guess what?
• 03:23 I'm just going to steal this, because I'm lazy.
• 03:26 Done, now, purchases.
• 03:30 The purchases, we've already got those, they're in row 99 up here, so
• 03:35 we can bring these in.
• 03:39 Okay, so we've actually done our purchases.
• 03:42 Now we cannot work out our cost of goods sold.
• 03:44 Well we haven't got that yet
• 03:46 so we need to calculate this out with a little computation up here.
• 03:50 We can bring in our inventory balance pre-cogs transfer that's going to
• 03:55 equal the sum back in here of these two rows.
• 04:02 And we can also work out the corresponding amount in dollars.
• 04:05 We've just done that.
• 04:06 Equals the sum of those two rows.
• 04:14 We also know what the cost of goods sold is, so we can calculate this.
• 04:19 Starting in row 109.
• 04:24 Put that in and we actually have 109 so we'll just copy this.
• 04:29 Put that in here and call it row 109.
• 04:34 Right, now I need to work out what my cost of goods sold is in thousands of dollars.
• 04:39 Well think of it this way, I know that I had in total my
• 04:43 inventory balance is $1,596.
• 04:46 I know that my kilos is 400, so I can work out what my average price is per kilo.
• 04:52 It's 1,596 divided by 400.
• 04:54 So multiply it by 200 or give me my COGS value.
• 04:58 So it's going to equal this multiplied by that.
• 05:04 Divided by that.
• 05:07 Bang, done.
• 05:12 Now what I'm going to do is take that.
• 05:14 That's going to be a transfer, so that's got to be a negative number
• 05:18 that comes out of my inventory balance.
• 05:23 There we go, looking better.
• 05:26 Now what I've got to do is I've got to calculate my wastage which I'll do
• 05:29 next time.
• 05:30 And once I've finished that I'll be able to put everything into my financial
• 05:33 statements.
• 05:34 Sounds good.
• 05:35 Let's carry on.

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