Trading Firms And Stock Flashcards
(15 cards)
Stock
What goods the trading firm purchases for the purpose to sell goods at a higher price so that the business makes a profit.
Why is stock important
It’s the main source of revenue for the business. It’s one of the most significant assets in the balance sheet.
How is stock classified
It is a current asset as it is a resource controlled by the entity as a result of a past event that will provide a future economic benefit within the next 12 months.
Perpetual inventory system
Continuous recording of all stock movement in the stock card.
Stock card
Records the movement in and out of the business of a particular line of stock.
Sales
The revenue earned by a trading firm from the sale of stock.
Purchases
The stock bought by a trading firm for the purposes of resale.
Cost of sales
The expense incurred when stock flows out of the business due to a sale.
FIFO
Firs in, first out. The assumption that the stock that is purchased first. It is used to identify the cost price. Must be applied to all transactions recorded inn the OUT column including sales, drawings, advertising and stock loss.
Physical stocktake
Stocktake is a process of counting every item of stock on hand to verify the accuracy of the stock cards and detect any stock loss or gain. NEED MORE NOTES
Stock loss
Stock loss is an expense that occurs when the stocktake show less stock that is shown on the stock card. Stock loss is an expense because it is an outflow of economic benefit in the form of a decrease in assets (stock) that results in a decrease in owners equity. Reasons for stock loss include theft, damage, over supply to customer, under supply by suppliers. Use Fifo to record stock loss.
Stock gain
A revenue that occurs when the stocktake shows more stock on hand that is shown on the stock gain. It is a revenue because it is an inflow of economic benefits in the form of an increase in assets that results in an increase in owners equity. Reasons for this include under supplying to customer, over supplying by customers, recording error in stock card. Stock gain is recorded at the lowest price available in the last balance provided in the stock card.
Benefits of the perpetual system
Assets in reordering of stock.
Fast and slow moving lines to stock can be identified.
Stock losses and gains can be detected.
How to calculate cost of sales and define cost of sales
The expense incurred when stock flows out of the business due to a sale.
Refer to the out column of the stock card.
Ignore any transaction that has a memo as the source document.
Add all the amounts that relate to a sale transaction.
How to calculate gross profit
Sales - cost of sales = gross profit
Sales = selling price * number of items sold
