10. Inventories Flashcards
What are inventories?
Good produced or purchased and held for resale by the business
What is the double entry for the purchase of inventory?
Dr Purchases
Cr Cash or Payables
- NO ENTRIES ON THE INVENTORY ACCOUNT AT PURCHASE
What is the double entry for the sale of inventory?
Dr Cash or Receivables
Cr Sales
- NO ENTRIES ON THE INVENTORY ACCOUNT AT SALE
Where does the value of inventory sit on the SFP?
Current Asset
When do we record for inventory?
Period End
What is the double entry for recording the closing inventory value?
Dr Inventory Cr COS (P&L)
Why do we credit COS with the period end inventory?
To offset the purchases that we have not sold
What is the double entry for recording the opening inventory value?
Dr COS (P&L) Cr Inventory
What is the calculation for Cost of Sales?
COS = Opening Inventory + Purchases - Closing Inventory
What should inventories be valued at?
The lower of cost and net realisable value (IAS2)
Define cost:
All purchase costs, costs of conversion and other costs incurred, including irrecoverable taxes and duties, in bringing the inventories to their present location and condition (incl fixed and variable overheads allocated)
What cannot be included in cost?
Cost of storage and carriage outwards
Define net realisable value:
The estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale (carriage outwards and sales commission)
What is the first in first out valuation of inventories?
The first goods purchased are the first ones to be sold - the newer/most recently purchased items are always held as closing inventory
What is the last in first out valuation of inventories?
The last goods purchased are the first ones to be sold - the oldest items are always held as closing inventory
