Specific Identification

Alright so let's talk about a special case of how we value our inventory when we have unique inventory are very easy to identify inventory. Let's check it out. So this is gonna be the specific identification method. It's pretty simple. So let's just dive right in a company can properly value it's good and inventory value if it can specifically identify each unit sold. Okay So this means that they know oh I know exactly what unit I sold because they can tell one unit from another. Okay So this like I said this is usually gonna require goods that are unique or otherwise just easily identified. Right? It's gonna be hard to tell one can of coca cola from another can of coca cola. But it might be easier to distinguish you know, maybe one customized boat from another customized boat or something like that. Okay so we're gonna see in this example that are our cost of goods sold. Well that's gonna be the price we paid, the price we paid for each unit sold. Right? That's pretty standard. And it's just gonna be oh we know how much we paid for this specific unit and that's the unit that we sold. Right? So we're gonna be able to identify the cost of each unit separately and then ending inventory. Well that's the price we paid for the units that we didn't sell right that are left over. That's gonna be an ending inventory. So let's go ahead and see an example here with specific identification. Abc yacht company resells yachts and only keeps a few units on hand. The units on hand at the beginning of june were yacht A with a value of 350,000. Yacht B. Value of 500,000 and yacht C. Value of 600,000 C. So you can see that we were able to identify each one and their own cost right? During june the company sold yacht B to a customer for 800,000. Okay. Half of which was paid in cash. Okay. So they're being a little tricky here with how we were paid, half of which was paid in cash. Journal eyes this sale and note the ending balance in the following accounts. Okay. So we want to know inventory revenue and cogs. So let's see what this journal entry for the sale is going to look like. Right, we sold yacht B For $800,000. Right? So how did we receive that money? Well, we got half of it in cash. 800,000 half of 800,000. Well that's 400,000 right. 800,000 Divided by two. Right, that's 400,000. That's how much cash we received. So we're gonna debit cash because we know we received cash of 400,000 But we're gonna get the rest of the money later. Right, there's more money that's owed to us the other 400,000. And that's an accounts receivable. Right, I'm gonna put a ar for accounts receivable and that's 400,000 as well. Right? Because eventually he's gonna have to pay us for the other half of the boat. So that's an asset accounts receivable. And then the credit side of this entry. Well that's gonna be revenue, right? We earned revenue of 800,000 because we sold this boat And we got that revenue 800,000. So there we go. That's our revenue entry right there. But we also have to do our cost of goods sold entry. Right? And specific identification, we know exactly what we sold. So we know which one is sold here. Right? Value, Yacht B. Is what we sold. And it had a value of 500,000, right? That's what we had paid for it. So we would have made another entry which I'll do over here and it would have been debating cost of goods sold For 500,000, right? The cost of the boat to us. And we would credit inventory because it's no longer in our inventory, right? We sold that boat. So we need to get it out of inventory. Right? So what is our inventory balance that's left? Well, it's gonna be the other two boats, right? The value of yacht A. And the value of yacht C. So it's gonna be 350,000. And I'm gonna put 350 K. For 1003 150,000 plus 600,000. And that's just 950,000 is what's left in inventory, right? Because we sold one of those boats revenue well, we earned 800 K. Right? We sold one boat and we got 800,000 and cost of goods sold was 500,000. So you can see our gross profit there, right? Would have been the 808 100,000 in revenue minus the 500,000 and cost a good soul. Cool. So you can see specific identification is pretty easy because we know exactly what we sold, Right? So we know all those values straight up. Uh So let's go ahead and pause here and then we'll try this practice problem. Alright, let's do it now.