Chapter 7 Flashcards
(25 cards)
Define inventories
Items which are held for sale in the ordinary course of a business or in the process of production for such a sale
Inventory are items which are
Held for sale in the ordinary course of the business or in the process of production for such a sale
What to ways do inventory affect the accounts
Statement of financial position, a potential large balance within current assets
Statement of profit and loss, opening and closing in inventory have a direct impact on the cost of sales and therefore profit
What is inventory recognised as?
An expense in the period in which the item is sold, which is consistent with the accruals principle of accounting
Explain the two main components of cost and sales which are opening inventory and purchases
Opening inventory It’s brought forward from the prior period and purchases our items acquired in the current period. They are recognised as expenses in the statement of profit loss under the cost of sales heading
What is carriage inwards?
The cost of transporting inventory to the businesses premises, which also forms part of cost of sales
Why is carriage outwards excluded from the cost of sales?
It is part of the distribution cost which sits below the gross profit line as it’s the cost of transporting infantry to customers
How are the goods help by the business at the end of the period included
As an asset in the statement of financial position and as a reduction in the cost of sales in the statement of profit and loss therefore close inventory has a jewel effect on the general ledger
What is the jewel effect for the closing inventory?
Debit closing and inventory SFP and credit closing inventory SPL
What are the two elements The infantry figure compromises of?
Quantity and evaluation
How can the quantity be ascertained?
From an inventory count at the end of the accounting period
What is an inventory count?
A physical count of the numbers of items held for each project the information is listed on period end inventory records
What does the inventory count Also check?
The condition of the inventory in order to identify any damaged inventory
What is valuation?
Inventory shall be measured at the lower cost and realisable value
What to do if inventory are expected to be sold at a profit
Value at cost and do not anticipate profit
What to do if inventors are expected to be sold at a loss
Are you at net realisable value and do provide for the future locks?
Define cost of inventory
Cost of purchase, including delivery, cost of conversion including direct labour and other cost to bring the inventory to its present location and condition
What is the cost of an item of inventory include?
Cost of purchase, including delivery, cost of conversion including labour, other costs to bring inventory to its present location and condition
What cannot be included in the cost of inventory
Selling costs and storage costs of finish good
What is net realisable value?
The expected selling price of the item less any further cost to be incurred such as cost to completion and selling or distribution expenses
How is NRV calculated?
Estimated selling price take away estimated cost of completion takeaway estimated selling and distribution costs
Formula learn
Lower of cost and net reliable value should be applied as far as possible on an item by item basis
What is inventory count?
The process of counting each line of inventory and comparing the quantity to the inventory records
What is inventory reconciliation?
Comparison of the quantity of each item shown in the inventory records to the actual quantity counted
