Average Cost Method (AVCO) | Inventory Cost Flows

💥Inventory Cost Flow Assumptions Cheat Sheet → accountingstuff.com/shop
In this video you'll learn about Inventory Cost Flow Assumptions. There are three of these:
▪ FIFO - First In First Out
▪ LIFO - Last In First Out
▪ AVCO - Weighted Average Cost Method
This accounting tutorial focusses on AVCO. You'll discover how the Weighted Average Cost method works and get to practice using it with an example. This episode is part of a mini-series exploring Inventory in Accounting. You can find the link to the whole playlist here ⬇️
🔗Full Inventory Playlist → • Accounting for INVENTO...
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⏱️TIMESTAMPS
00:00 - Intro
00:37 - What is the Inventory Calculation?
01:09 - The three assumptions: FIFO, LIFO and AVCO
01:23 - How AVCO works (Weighted Average Cost)
01:58 - Accounting with AVCO - Example
02:41 - Step 1: Draw an Inventory Cost Flow Table
02:55 - Step 2: Enter what you know
04:17 - Step 3: Fill in the blanks
07:10 - Step 4: Cost of Goods Sold and Closing Inventory
08:03 - FIFO vs LIFO vs AVCO
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[@AccountingStuff]

That's a wrap on the Inventory Playlist! Let me know if you have any suggestions for future vids. Timestamps: 00:00 - Intro 00:37 - What is the Inventory Calculation? 01:09 - The three assumptions: FIFO, LIFO and AVCO 01:23 - How AVCO works (Weighted Average Cost) 01:58 - Accounting with AVCO - Example 02:41 - Step 1: Draw an Inventory Cost Flow Table 02:55 - Step 2: Enter what you know 04:17 - Step 3: Fill in the blanks 07:10 - Step 4: Cost of Goods Sold and Closing Inventory 08:03 - FIFO vs LIFO vs AVCO

[@kartikaylavaniya4245]

Howdy

[@AccountingStuff]

@@kartikaylavaniya4245 Yo!

[@mujahidahmed8]

Need a video on inventory aging report

[@AccountingStuff]

@@mujahidahmed8 Good shout!

[@enen6221]

Hi! I know this might be late but it would be an excellent help if you would be doing a video on analysis of cost behaviour. Thank you!

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It's like you know exactly what i'm questioning and you answer everything. like, wow. you will be the SOLE reason i (hopefully) pass my accounting midterm at uni. Thank you! (Also you're quite entertaining so your videos aren't boring to watch either 😊)

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Did you pass?

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@@BillyBOb-cp6qm unfortunately not the first time lol, but the second time yes!

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you are literally a lifesaver. your videos have taught me more than hours and hours of class and reading the textbook have. thank you thank you thank you!!

[@pomberto217]

James, you have the best accounting channel on youtube! Do a ppe and depreciation video (+ new ifrs 16 lease assets recognition)

[@AccountingStuff]

Thanks mate! I plan to cover PPE & depreciation in the new year

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Hey James! I'm a current yr 9, just entering gcse's and trying to grasp a head start on what i'd like to do in the future, and thanks to you, my heads set on financial accounting. I've also been on this channel for quite a while now and im proud to see that your channel has blown up so much! I just want to say thank you for your content and time!

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I appreciate all the work you put into these videos, you can tell from the animations and identical format how you're trying to get it across in the easiest way possible. Much appreciated from a CFA candidate who never took an accounting class in college (somehow).

[@AccountingStuff]

Thanks Phoebe! Hope your CFA is going well :)

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Accounting stuff > college professors that have been teaching for decades

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I agree!! I'm studying for the CMA (certified management accountant) exam and this is VERY helpful. Excellent job James!! Hoping you see this and know what a great thing you are doing for many!!

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This is soooo true, im crying😭

[@JohnWhite-ms5wr]

No kidding, I just read about these in my textbook and it did a really bad job at explaining all 3 of these flows.

[@annetteh8971]

Hi James What can I say. I looked at this in my study book and really didn't have a clue. Unwatched your FIFO, LIFO and AVCO and I got all the questions right! Thanks for taking the time to put these videos together. X

[@AccountingStuff]

No problem at all. Glad to hear it's making sense!

[@annaglbn]

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[@AccountingStuff]

No worries Anna, glad I could help!

[@samm3569]

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Thanks man we need more videos about accounting

[@AccountingStuff]

Cheers mate, I plan to make a lot more

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5 more videos until I've watched all your videos in the Basics Playlist!! Thank you for the amazing videos!! I don't know if I've ever been able to keep to a video series for this long. haha.

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Thank you sir. I know these videos take more time and work than they look. I appreciate your time.

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[@AccountingStuff]

Thanks Karla, I appreciate your support!

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[@AccountingStuff]

Thanks Charmaine, good luck with your job hunt!

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[@AccountingStuff]

Cheers Abdul, it's great to hear that you're finding the vids helpful. All the best!

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Week’s away from my ELCO exam, without you genuinely I don’t think I’d pass, I had been stuck for days and then I watch this video and you break it down so well it becomes simple! Thank you!

[@AccountingStuff]

You've got this!

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[@AccountingStuff]

Thanks Roberto, all the best!

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[@AccountingStuff]

Thanks Ale! You've very welcome :)

[@mishkajenkinss]

You don't know how happy i am to have found your channel. You've made everything so clear! I'm doing my FA2 exam in 2 weeks and your videos are helping along with studying. I've always struggles with FIFO & LIFO. Thank you! I will be passing your video links to people I know 😁

[@AccountingStuff]

Good luck in FA2! Hope you ace it :)

[@Skierkal]

Thanks James for these videos! I have my accounting final this Saturday for my online accounting course, and I literally could not have passed this course without you! Keep the awesome content coming! Thanks! (Also, an explanation of a multi-step income statement would be very useful!)

[@AccountingStuff]

No worries Kaleb, best of luck in your exam! Let me know how it goes

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Just what I need to start my week ❤❤❤

[@AccountingStuff]

🤘

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And there goes another entire chapter understood thanks to your amazing videos, I wouldn't have reached to where I am in accounting without your help and lovely interactive videos :))

[@AccountingStuff]

Great to hear it's going well. All the best :)

[@gabrieltamaki4595]

Your videos are so insightfull, no need to hire a coach! Thanks for sharing such valuable knowledge :)

[@deepikashree.v9678]

Your videos are precise and to-the point. I watched videos of FIFO, LIFO and AVCO. I understood all three concepts which I didn't understand earlier. It was really helpful for my exams.

[@DixieAcres]

I love your videos. After each of my assigned chapters and my professors PowerPoints I find the topic that matches one of your videos and watch it to really understand the material and clarify. I call you my "second professor". Thank you so much for these videos, it is helping me pass this Financial Accounting class.

[@AccountingStuff]

It's an honour and a privilege to be your 'second professor'! Best of luck with your studies :)

[@danielle228512]

So far have gotten an A in both financial and managerial accounting! I’m hoping to keep the A streak going for the rest of my accounting courses! 🙌🏻. Next semester-> Accounting Information Systems.

[@AccountingStuff]

Congrats Dani, you're crushing it!

[@ethereal946]

James! You are so helpful, i hope you get back as much as you are giving out. This was extremely helpful, thank you.

[@AccountingStuff]

Thanks Lois! I'm happy you found it useful :)

[@seanjohnry2011]

I really enjoy your videos. Thanks for representing the industry well! Keep up the excellent work!

[@AccountingStuff]

Cheers Sean!

[@kahlschlag17]

Awesome effort mate. I have been trying to grasp inventory cost flow assumptions using two university text books on accounting. Just couldn't get it before my eyes glazed over. You explains things well and to the point. Thanks for the enlightenment.

[@AccountingStuff]

No worries, glad it's making sense :)

[@sarahbrown8626]

I would be so lost in this textbook without you! Thank you!!!

[@AccountingStuff]

You're very welcome :)

[@leonasmith5053]

Thank you so much for taking the time to explain accounting. I know I wouldn't have passed without your simple and easy format to follow. The textbook will explain the problem but the questions on homework and the quiz are not lining up LOL so thank you! You are the best teacher!!

[@AccountingStuff]

No worries, congrats on passing!

[@mujahidahmed8]

Hi James thanks for the video very informative , we need another video on inventory aging report

[@CJ-yq8il]

Hi James, brilliant videos and very much appreciated. I've bought all your cheat sheets as a bundle and they have come in very handy. I'm with Kaplan on the ACA/CTA joint programme; using my exemptions. I just wanted to say you have a way with teaching; I luck forward to your future vids! Keep going!

[@AccountingStuff]

Cheers CJ! I studied for my ACA with Kaplan too. Nice to hear that you have some exemptions, I had to take all of the exams. Best of luck with it!

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Thank you James.... Great job

[@Credinellatuastoria]

This video was as useful as entertaining. Way to go James!

[@AccountingStuff]

Cheers Michele, let's catch up soon!

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Your videos and here to help me out yet again for another semester

[@AccountingStuff]

All the best with your studies!

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This video made it so much easier for me! Thank you so much! ☺

[@AccountingStuff]

Glad to hear it! All the best :)

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Hi James. I really enjoy your videos! I have started studying Accounting this year and it has helped me loads. When can we expect some new videos?

[@kio5078]

Hey James! Bro, you are soooo good at explaining and breaking down information. Your videos and edits are well done, the way you present information through visual illustrations is so clean & easy to follow. I'm a graphic designer and have a very deep appreciation for content creators who can use proper visuals to help improve comprehension and retention. You sir, makes accounting stuff easy to digest! Subscribed, liked, binge-watched all your vids and bought the Cheat Sheet Bundle. :) Thanks for providing very useful content. As for my question: The example you provided was for 1 product, how will this apply to multiple items/SKUs with different varying costs? My initial thought would be to have individual cost flows for each SKU, then added together to get total closing inventory, is that the right way? Or... ALL inventory gets lumped together in one cost flow table then costs just get averaged out? ( btw, asking for the purpose of reporting COGS in tax return )

[@AccountingStuff]

Thanks for your feedback! I really appreciate it. Regarding your question - if you have multiple (different) products then you would use Inventory Assumptions to value each set of inventory separately. Then you would add them all together to come to a Closing Inventory number as you say. But if each item has a bar code and can be tracked individually then you could use a specific identification instead i.e. no inventory assumptions

[@liviasomkuti957]

Your videos are so helpful and well explained. Thank you!!

[@AccountingStuff]

Thanks Livia!

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idk how but your making me enjoy accounting for the first time in my life lol

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That... is great news :)

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Very clear explanation and easy to understand 👌👌👌

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[@AccountingStuff]

Congrats!!

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Best of luck with your studies!

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Very clear and fun ad always! 👍

[@AccountingStuff]

Cheers Lena!

[@Susan_C]

Very detailed . thank you so much

[@THOMPJB008]

This is brilliant! I’ll use this as a basis for our inventory system. But we have raw materials inputs and use percentage of completion method for revenue cognition, so I’ll need yo adapt it to that

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[@AccountingStuff]

No problem, love from Canada!

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Cheers Owen, glad it helped :)

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Thank you so much for making these amazing videos !

[@AccountingStuff]

No worries, I'm happy to help!

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woahh! such a great and most understandable explanation! thank you so much!

[@AccountingStuff]

You're very welcome :)

[@blast2686]

I just loved the outro music ;) Can you also cover the Adjusted Selling Price Method? You see, retail stores like to value their stock/inventory at their selling price. So calculating the COGS could be really tricky here(well for me lol)

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Love your video so much, good example clear explanation.

[@AccountingStuff]

Thanks!!

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Thanks, James. I'm an accountancy student from Brazil.

[@AccountingStuff]

No worries Cleiton!

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great explanation, thank you

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Cheers!

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Amazing

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Excellent videos as usual 👍👍 Keep it up

[@AccountingStuff]

Thanks, will do!

[@TheGeminancer]

Love your videos!!! would you make one on stock-based compensations? This topic is pretty dense and I think you could find a more concise and easy-to-understand way to explain it. Thanks alot!!!

[@AccountingStuff]

Hey Gem, thanks for your suggestion!

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James, you made accounting easier❤️

[@AccountingStuff]

That's great to hear! All the best ;)

[@emmsw]

Hello James. Thank you for these videos, they help with the absorption of information I am learning from my classes. Speaking of absorption, can you please do a video on cost centres and overhead absorption? Many Thanks x

[@AccountingStuff]

Glad to hear you're finding them useful. Thanks for your suggestions!

[@thadeshsai7289]

Great video as always........Discussing some typical questions on depreciation,inventory,.. Etc ..Could help gain further command on the topics

[@AccountingStuff]

Thanks Thadesh!

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Oh my goodness thank you for this.

[@AccountingStuff]

You're welcome :)

[@mcnab4ever]

Hey James, I've watched all your videos, made notes and ordered a copy of The Accounting Game. I've really enjoyed all of your content and I just wanted to say a big Thank You! What would you recommend in terms of taking the next step towards becoming an accountant? Should I start studying for the ACCA exams?

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your knowledge is amazing...plzzzzz try to share as much as you can.🌠👍👑

[@AccountingStuff]

Thanks Makiya, will do!

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He literally IS my accounting professor

[@jone30rw]

Thanks for the great video. I have a quick question, which doesn't specifically related to AVCO but to all inventory cost flow assumptions. How should we handle goods return? like when we sale something then the customer returns it or when we are sending back some of the items that we bought? Do you have a video on this? or a reference, example? Thanks in advance. Thanks again for the great and easy to understand video :)

[@joserocha7850]

Thanks for helping me out on my exams 🙏

[@AccountingStuff]

No worries Jose, good luck!

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thanks so much!! I love your channel which explains accounting theory in a funny way :))

[@AccountingStuff]

Cheers Alice, I'm happy you're enjoying the videos

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just purchased your sheets. currently taking acct 2301 , thanks man

[@AccountingStuff]

Cheers for your support!

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Hi sir Thank you for your helpful video. I really like your video.

[@AccountingStuff]

No worries Zahra, you're welcome

[@lucahenke6378]

Hi James, your videos are great and they're being very helpful while studying accounting. What do you think about making a video to explain depreciation and depreciation methods?

[@AccountingStuff]

Thanks Luca, I plan to make a whole series on fixed assets and depreciation soon

[@shakhzodbekshukhratov8131]

thank you sir

[@NoNameLondon]

OMG, James, so glad to see all your videos again! I just done my ELCO exam and got 95%, really happy about that, but I could of done with this about 2 months ago. It's great though, I can brust up on everything on my FYSA exam coming up. Love the videos man, still the best channnel out there. Hope all is well in Canada? James, do you offer private online lessons? For sure videos I could recommend doing some on AAT leve-L3 and, 4. Maybe something to do with how we can get into different careers and what jobs we can do in accounting online, and also, what job types can we go into and some of the pros and cons. 'Kinda' finding out how do find what we would like to get into after outstudy.

[@AccountingStuff]

Boom! Congrats on acing your exam!! Thanks for all of your suggestions, I appreciate it.

[@NoNameLondon]

@@AccountingStuff No worries, you're welcome. I will keep an eye on your videos see what comes up.

[@NoNameLondon]

@@AccountingStuff PS: Also maybe something on the 'finance function' and maybe something on the 'Ethics - The principles' and also the 'Threats to principles (conflicts of interest)'

[@vishalanand7054]

Hey man .. loving your explanation, would love to see an explanation on accounting for Sale and lease back of Finance lease and Operating lease.

[@AccountingStuff]

Hey Vishal, cheers for your suggestion

[@Jane306]

You're an angel. you explain better than my prof... i have one question... is it possible for a company to choose which method they want to use depend on the inflation, for instance, choosing LIFO when they don't want do pay more tax lol

[@rebeccaairabaliton8136]

perfect for asynchronous online classes

[@tammyschoenfeldt7625]

Thanks!

[@AccountingStuff]

Thank you!!!

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NICE!

[@AccountingStuff]

Thanks Ari!

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good stuff

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Hey James, Applause from Pakistan. I am facing great trouble in balancing accounts using brought down and carried forward methods. And how to use them in SOFP and Income Statements. And also expenditures and types of expenditures. Your huge #Fan from Pakistan waiting for these videos...

[@AccountingStuff]

Hey Usman, cheers for the suggestions. All the best from Canada :)

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can we all agree he's the goat of accounting

[@AccountingStuff]

You are too kind!

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You saved me!!

[@AccountingStuff]

Happy to help :)

[@TheLantuna]

I realy like your way to explain all accounting stuff, but can you also make a video for auditing and other related topics on accounting? Cheers, keep up your greay work.

[@AccountingStuff]

Thanks for your suggestion! I'd like to make some audit-related videos at some point. All the best!

[@janag3515]

Hi James! Love your videos, you make Accounting so easy to understand, and I'm going to buy your cheat sheet soon for my upcoming exam :) I have one question though, not sure if it's been asked. What happens to my opening inventory unit cost for the next month if I use AVCO? From your example, is it $2.65? Hope to hear from you!!!! Thank you

[@AccountingStuff]

Cheers for your support! Opening Inventory Unit Cost is the same as the closing cost for the prior month

[@fardeenshamsab4254]

A big thank from Kabul

[@AccountingStuff]

No worries Fardeen, you're welcome :)

[@HOMEFOODMANIACS]

Happy new year James

[@AccountingStuff]

Cheers Munesh, likewise! Hope you enjoyed the holidays

[@Misfit_FATDUCKY]

top notch

[@AccountingStuff]

Thanks Jay!

[@azarhuseynov2123]

10 minute video as effective as as an hour lecture

[@Subachacko]

Thanks! Do you have a video explaining how this works for the inventory left over for the year, and what to do with it into a new year? Can the old and new inventory be averaged out over 2 different tax years?

[@waldeckalex]

Thanks broham

[@AccountingStuff]

No worries Alex

[@jacobfierro3964]

Hi James, your videos are great! Is it possible that you make a video about WIP accounts in manufacturing? to me that is a very interesting topic that most companies try to avoid. Cheers!

[@AccountingStuff]

Hey Jacob, thanks for your suggestion! I'd like to cover that soon

[@PEbro34]

could you cover the cost flows in both perpetual and periodic inventory systems?? Love you videos, bought all of the cheat sheets!!! Cheers!

[@AccountingStuff]

Thanks for your support! I have covered that in another video :)

[@theguyhimself4318]

Hey James! Accounting Student here from the philippines! Can you discuss about Auditing in the future? Love your channel mate :D

[@AccountingStuff]

Hey there! I'd like to at some point. I did a few years in Audit so there is a lot to share

[@theguyhimself4318]

@@AccountingStuff Cheers!

[@sadeqalbana]

the best accounting channel so far so I'm implementing an accounting software and used the AVCO method, the problem is after many purchases with different costs and after selling tens of thousands of units, when the inventory becomes empty with zero stock, the inventory account is left with a credit balance of very small fractions like 0.0002. is this something to be expected and is acceptable in terms of accounting ?