This video shows how to use the average cost method to calculate Cost of Goods Sold (COGS) and ending inventory for a company that uses a periodic inventory system.

Companies that use a periodic inventory system do not make changes to the inventory account when inventory is purchased or sold. Thus, a company using average cost and a periodic system would wait until the end of the period before adjusting the inventory account or recording Cost of Goods Sold. At the end of the period, the company would calculate the weighted average cost of the inventory on hand during the period (this includes purchases made during the period, plus any beginning inventory) and multiply this by the number of units sold to obtain the Cost of Goods Sold for the Income Statement. The same weighted average cost would then be multiplied by the number of units still on hand to obtain the ending inventory for the Balance Sheet.