Alright, now let's talk about how to use Fife. Oh Life. Oh and average costing in a periodic inventory system. So when we sell large amounts of of identical units, we can use different cost flow, what we call cost flow assumptions to track costs of goods sold and inventory. Okay, so remember we're in a periodic system so we're not gonna be making cost of goods sold entries all the time. Right? We don't make it after every sale, like in a perpetual system. Okay. We're only gonna deal with cost of goods sold at the end of the period. But which items did we sell? Right, That's the whole trick here with the Fife. Oh, the life of the average cost. Remember we're talking about selling identical units here. Right, so this is different, you know, cans of soda, Right? If you have all these different cans of soda, you can't tell one unit for the other. So we use cost flow assumptions to see which units we sold out of our inventory. Okay, so the first one is our first in first out. This is what we call Fife. Oh right, first in first out is Fife. Oh and this means that the oldest unit is sold first. Okay, the oldest unit is sold first. Right? The first one that came into our inventory is the first one that goes out of our inventory. Right, So the oldest unit is sold first and that means that the cost of goods sold is going to be what you paid for older units, right? The oldest units that you have are the ones that are gonna be put into cost of good soul compare that to excuse me, last in first out. That's life. Oh right. Last in first out. So this means that the newest unit is sold first. Right? So what's gonna happen is our cost of goods sold is gonna represent what we paid for the newer units. Right. So the whole thing that that makes this tricky is that every time we're purchasing new inventory we're purchasing it at a different price in these problems. Right. In these problems, it's not like, oh, you buy all your inventory at $2 a unit forever. Right? Well then we wouldn't need all these costing methods if it was just always the same price here, it's a way for us to deal with these changing prices. Okay. And then the last one here average cost, well, we're just gonna take an average, okay, we're gonna take an average cost that we've taken for all our units over time. And and then that's what's gonna go to cost of goods sold would be that average of what we paid. So here's how we would find our average cost. We would take the total cost of everything we paid and divided by how many units we bought. Right? This will give us a cost per unit. Okay. And that's what we want is a cost per unit. So you do your total cost divided by quantity. And I want to make a really important note. Okay. Is that the cost flow assumption whether we're using Fife O Life o average cost. It does not it does not have to be consistent with the physical flow of goods. Okay. Just because we're in life. Oh that doesn't mean we have to actually take the newest one of these cans and sell this can to our our customer. Right? It doesn't matter which can remember they're all identical. So this is just to to deal with the cost of the inventory, not the actual physical flow of the goods. Okay. So we can still, even in a life oh system you might still want to sell off the oldest inventory because it has the nearest expiration date. Okay. But there would be a reason, you know, different reasons why you might want to use Fife Oh Life, Oh average cost. We'll talk about that a little more. But that that's the big, big picture here. Is that the physical flow, right? Which can we're actually taking out of inventory to sell to the customer. It doesn't have to match up with this costing method we choose. Okay, so remember that in a periodic system and inventory count were physically gonna count what's left. We're gonna go into our warehouse and we're gonna say, okay we have this many cans of this stuff, we have this much of this stuff and we're gonna count what's left and it's gonna reveal the quantity in ending ending inventory. Okay. It's gonna tell us how many in this case, you know, for reselling Kansas soda or something, it'll tell us how many cans of soda we have left in our inventory. And when we're dealing with a periodic system, this has to be given to you in the problem. Okay, they're gonna have to give you this ending inventory number. Okay, So let's go ahead and check this out. We're gonna use these formulas like we've been used to we've had this base formula, right? We've talked about how inventory increases and how it decreases. Well, it's the same idea here, right first, I want to look at this bottom box, look at this one, we've seen something like this before, right? We're gonna have our beginning inventory and then we're gonna purchase stuff throughout the period. And then what decreases our inventory is when we make sales. Right? And that goes to cost of goods sold and leaves us with ending inventory. Okay. We're adding one new little idea here in this top box and it's the idea of goods available for sale, and this is just the beginning inventory plus the purchases. Okay, So if we think of what we had on hand at the beginning of the period and then everything that we bought during the period. Well that's everything that we have available to sell to customers, right? And those goods available for sale, right? The what we started with plus the purchases were either gonna sell it to a customer, so it'll go to cost of goods sold, or we're not gonna sell it to a customer, and it's still gonna be an inventory in the ending inventory. Okay. So that's a that's a good note there. Is that those goods available for sale, right? That's either gonna end up in cost of goods sold or not in cost of goods sold and stay in inventory. Cool. So let's go ahead and see this example right here. Actually, let's pause here, and then we'll do the example in the in the next video. Alright, Let's take let's take a quick break.