From the course: Financial Accounting Foundations

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Inventory and COGS

Inventory and COGS

From the course: Financial Accounting Foundations

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Inventory and COGS

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- For a retail company, the most important expense on the income statement is cost of goods sold. However, even in a simple situation, a surprisingly difficult question to answer is, how much is cost of goods sold? Consider these transactions for Ramona Rice Company. On March 23rd, she purchased 10 kilograms of rice for $4 per kilo, total cost $40. On November 17th, she purchased 10 kilograms of rice for $9 per kilo, that's total $90. And then finally, on December 31st, she sold 10 kilograms of rice for $10 per kilo, total selling price $100. Let's start with a simple question. What is the operating cash flow for Ramona Rice Company for the year? The computation is easy. Paid $40 for the March 23rd rice purchase, paid $90 for the November 17th rice purchase, and then collected $1000 for the December 31st rice sale. Minus $40, minus $90, plus $100, that's negative $30 in operating cash flow for the year. Now there is…

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