Week 7 (accounting for inventory) Flashcards
(15 cards)
Iventories
- assets
- held for sale
- in the form of materials or supplies to be consumed
Sales
- income statement
the amount of money earnt from selling to a customer
Sales return
- income statement
the amount of money that has to be given back due to returns
Net Sales
- income statement
= sales - sales return
Cost of sales
- income statement
how much the inventory cost
Gross profit
- income statement
= net sales - cost of sales
Inventory
- balance sheet
It is a current asset
cost of inventory
- cost of purchase
- cost of conversion
- other cost incurred bringing the inventory to its location
pricing methods
Specific identification: higher value items (car)
First in first out: used for interchangeable items
Weighted average: sells an average of the prices paid for the inventory
The perpetual method
- maintains a continuous record of inventory transactions
- known as the asset approach
- cost of sale is recorded everytime a sales occurs
Sales transactions
two entries are made when a sale occurs
- the selling price
- the cost price
selling price:
Dr - Cash (asset)
Cr - Sales income (income)
cost price:
Dr - cost of sales (expense)
Cr - Inventory (asset)
Sale returns
two entries also need to be made when returning things
selling price:
Dr - Sales returns (income)
Cr - Cash
cost price:
Dr - Inventory (asset)
Cr - Cost of sales (expense)
Stock take
inventory loss:
Dr - Inventory loss (expense)
Cr - Inventory
inventory gain:
Dr - Inventory
Cr - Inventory gain (income)
Net realisable value
NRV is the estimated selling price minus the estimated cost of completion and estimated cost to make the sale
Applying write down
write down is applied when inventory decreases in value
the write down is equal to: selling price - NRV
to apply
Dr - Inventory write down expense (write down x number of items)
Cr - Inventory
