Average Cost Method (AVCO) | Inventory Cost Flows

[@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!

[@ryanncatherine606]

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!!

[@Ri-ul7nb]

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 😊)

[@stenkamx5406]

Also using Accounting Stuff to hopefully pass my midterm. His videos are excellent!

[@BillyBOb-cp6qm]

Did you pass?

[@Ri-ul7nb]

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

[@phoebe8885]

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 :)

[@abdulsultanigy8880]

Your videos amaze me. This youtube channel is free gold

[@AccountingStuff]

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

[@roundersproduction]

Accounting never be too easy Thanks man for adding flavour to this subject 💚💚💚💚💚 Love from Pakistan

[@AccountingStuff]

No problem, love from Canada!

[@roundersproduction]

@@AccountingStuff 💚

[@KarlaLopez-tw9dd]

You have no idea how grateful I am to have found your channel. Geez. Thank you so much! I will send all your vids to my peers and buy your cheat sheets. GOAT!

[@AccountingStuff]

Thanks Karla, I appreciate your support!

[@Smiley-ep6qu]

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!

[@annaglbn]

OH MY GOOOOOD, your channel is salvation for me!!! I am from Uzbekistan, and i NEEDED an explanation of some topics. THANK YOU❤❤❤

[@AccountingStuff]

No worries Anna, glad I could help!

[@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!

[@alexiaricartp]

You are the best teacher I’ve ever had. Thank you soooo much

[@AccountingStuff]

Thanks Ale! You've very welcome :)

[@kinglr588]

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!

[@sarahbrown8626]

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

[@AccountingStuff]

You're very welcome :)

[@forrestkuchling7025]

Accounting stuff > college professors that have been teaching for decades

[@stuartgoodwin819]

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!!

[@namabelakang1865]

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.

[@RobertoLicardie]

Your Chanel is a blessing, mate. Thanks for the help!

[@AccountingStuff]

Thanks Roberto, all the best!

[@samm3569]

Just wanted to thank you for all your amazing videos. You’re getting me through my online summer accounting class!🙏

[@2kooolkid]

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

[@AccountingStuff]

All the best with your studies!

[@dantesmith3664]

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

[@mariamislam6863]

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 :)

[@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

[@afsheenshakeel4498]

You are really amazing. You teach the whole thing in few minutes and i never got to understand the concepts from my teacher I'm in my bachelors and have science background so it was really difficult for me in the first place but you made it all easy. Thanks! ❤️

[@christinaahn1887]

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.

[@lckcyy]

Everytime i finish my class i come to youtube to find his vids for better understanding, surely helps a lot

[@AccountingStuff]

Best of luck with your studies!

[@tammyschoenfeldt7625]

Thanks!

[@AccountingStuff]

Thank you!!!

[@abdelazizmassoud4440]

Thanks man we need more videos about accounting

[@AccountingStuff]

Cheers mate, I plan to make a lot more

[@charmaine6454]

Hi James! After a month from finishing uni, I feel like I've forgotten what I've learnt, but your videos were great to refresh my memory. Good timing as I start applying for work. Keep it up! Your videos are really helpful and you make accounting interesting! 🙂🙂

[@AccountingStuff]

Thanks Charmaine, good luck with your job hunt!

[@its_me_human6448]

I began considering u the first reference and the first teacher to get info from. U inspired me, thanks a lot fam.

[@johnq3543]

Thank you James.... Great job

[@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.

[@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

[@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 :)

[@nathaniela.diawuo5597]

Just what I need to start my week ❤❤❤

[@AccountingStuff]

🤘

[@gabrieltamaki4595]

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

[@bjjgarage1378]

great explanation, thank you

[@AccountingStuff]

Cheers!

[@Jessethegoatakamishka]

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 :)

[@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!

[@Vicoconlav]

Hey man, thanks to you I got 30 cum laude (highest italian grade) in my accounting class, you're amazing! Thanks a lot, love and support from Rome!!!

[@AccountingStuff]

Congrats!!

[@WestVision]

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

[@AccountingStuff]

That... is great news :)

[@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 :)

[@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 :)

[@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

[@makiyashoukat8807]

amazing amazing superb, i have no words to praise you. plzz share more and more knowledge with us. i believed very soon you are going to get the millions of subscriber inshallah. love from pakistan

[@Credinellatuastoria]

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

[@AccountingStuff]

Cheers Michele, let's catch up soon!

[@mosquitokiller7375]

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

[@AccountingStuff]

Glad to hear it! All the best :)

[@zahraasifi7992]

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

[@AccountingStuff]

No worries Zahra, you're welcome

[@maryannbermudez7229]

Very clear explanation and easy to understand 👌👌👌

[@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!

[@liviasomkuti957]

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

[@AccountingStuff]

Thanks Livia!

[@seanjohnry2011]

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

[@AccountingStuff]

Cheers Sean!

[@Lolomarieee]

He literally IS my accounting professor

[@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?

[@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 :)

[@zaxlabittu9669]

James, you made accounting easier❤️

[@AccountingStuff]

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

[@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!

[@cleitonsamuel6522]

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

[@AccountingStuff]

No worries Cleiton!

[@alexandrestamkos7488]

can we all agree he's the goat of accounting

[@AccountingStuff]

You are too kind!

[@mujahidahmed8]

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

[@chrisnabuitendag7294]

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?

[@reschefven]

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

[@AccountingStuff]

You're very welcome :)

[@melinaabney4747]

Hello! I have a scenario to hopefully better understand. If an invoice is received for the unit cost + shipping, and then credit card fees are charged on top of that....does all of that go into the total cost for the inventory and then get divided by the number of units to get the weighted average?

[@abdulmajeedal-garni8099]

Excellent videos as usual 👍👍 Keep it up

[@AccountingStuff]

Thanks, will do!

[@lenaf443]

Very clear and fun ad always! 👍

[@AccountingStuff]

Cheers Lena!

[@azarhuseynov2123]

10 minute video as effective as as an hour lecture

[@makiyashoukat8807]

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

[@AccountingStuff]

Thanks Makiya, will do!

[@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

[@owennoexos6784]

Wow, you've really explained this so well and so easy Thank you!!!

[@AccountingStuff]

Cheers Owen, glad it helped :)

[@JohnSteinway]

Love your video so much, good example clear explanation.

[@AccountingStuff]

Thanks!!

[@aac8033]

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

[@AccountingStuff]

Cheers for your support!

[@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

[@thadeshsai7289]

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

[@AccountingStuff]

Thanks Thadesh!

[@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

[@dieptran5604]

Thank you so much for making these amazing videos !

[@AccountingStuff]

No worries, I'm happy to help!

[@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!

[@Susan_C]

Very detailed . thank you so much

[@joserocha7850]

Thanks for helping me out on my exams 🙏

[@AccountingStuff]

No worries Jose, good luck!

[@ZafarNilay]

What if the purchases you make later on are cheaper? Then does the FIFO method give us lower profit while LIFO gives the higher profit?

[@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

[@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)'

[@usmanalyassirajuddeen]

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 :)

[@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)

[@alicechu1461]

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

[@panaddawinsor409]

You’re a life saver

[@rebeccaairabaliton8136]

perfect for asynchronous online classes

[@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?

[@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 ?

[@TateBugs]

This may be obvious, but how do you calculate your monthly profit using this method? Do you just subtract the opening inventory costs from the cost of goods sold?

[@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!

[@lesterntoko5325]

What happens if there is more than one sale? Great video by the way!!!!!!!!!!!

[@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!

[@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 :)

[@zhalamammadova9499]

OMG YOU ARE AMAZINGGGG

[@Cyrasynove]

Hi, I'm confused about the continuous WAVCO with multiple purchases. Your example is only 2purchases, how to value on the 3rd purchase? Do I take the last average cost + the current purchase price to average out the price?

[@connorkeough8499]

I understand this concept, but there is a beginning inventory then a SALE then a purchase. So how would I go about this? Would it be as simple as putting the cost per unit of the sale as the cost per unit of the beginning inventory and not needed to average anything? I cant find videos about this type of problem anywhere.

[@saabastiana4111]

Do u teach Economics too? Would love to see some vids on micro and macro econs

[@AccountingStuff]

Hey Saabastian, unfortunately I don't. I did study it at school but that was a long time ago

[@saabastiana4111]

Accounting Stuff haha it’s ok! Much thanks

[@HOMEFOODMANIACS]

Happy new year James

[@AccountingStuff]

Cheers Munesh, likewise! Hope you enjoyed the holidays

[@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!

[@nodaribasilashvili3812]

Thank you for the video. Very helpful. Just can someone help me to understand, how is revenue 2750? how is it calculated?

[@NoName-fc5wc]

Could you distinguish moving average and weighted average please?

[@rommelngo9005]

Would you be able to help explain how to calculate the average cost if inventories go into negative? 3 scenarios: 1. goods in on negative inventory to zero 2. goods in on negative inventory to positive 3. goods in on negative inventory which stays negative. How do you calculate the average cost for each of the scenario?

[@fardeenshamsab4254]

A big thank from Kabul

[@AccountingStuff]

No worries Fardeen, you're welcome :)