12.2 How is inventory accounted for? Flashcards
Which inventory recording method are the students required to know?
Perpetual inventory recording method.
What happens when a business buys or sells goods?
The physical goods are moved in and out of the business’ premises. When goods are bought, the business receives the physical goods. When goods are sold, the business sends away the physical goods.
What happens if the business were to return goods to its supplier?
The physical goods are moved out of the business’ premises.
What happens if a customer returns goods to the business?
The physical goods are moved into the business’ premises.
What is the consequence of any transaction involving the movement of goods?
The value of the inventory is affected and this is recorded in the inventory account.
What is the double entry rule for the Inventory Account?
As an asset, an increase is recorded in the debit column while a decrease is recorded in the credit column.
What is shown / reflected in the balance column in the Inventory Account?
The cost of unsold goods owned by the business.
What is the double entry for:
When goods are purchased from suppliers?
Cash Purchase:
Dr Inventory
Cr Cash in hand or Cash at Bank
Credit Purchase:
Dr Inventory
Cr Trade Payable
What is the double entry for:
When goods are returned to suppliers?
Dr Cash in hand or
Dr Cash at bank or
Dr Trade Payable
Cr Inventory
What is the double entry for:
When goods are sold to customers?
Dr Cost of Sales
Cr Inventory
What is the double entry for:
When goods are returned by customers?
Dr Inventory
Cr Cost of Sales
When are goods inventoried?
At the points of purchases and expensed as cost of sales at the points of sales.
