Chapter 8 - (Identified C)Recording and Reporting for Inventory

Question 1

What is a trading firm?

Answer 1

a firm that purchases goods in order to resell them at a profit

Question 2

Why is inventory so important for business?

Answer 2

Because it is the main source of revenue while being one of the most significant assets the firm controls.

Question 3

Inventory Card Definition

Answer 3

a Accounting record that records each individual transaction involving the movement of inventory in and out of the business of a particular line of inventory

Question 4

Where do purchase and sales return go in the inventory card

Answer 4

Purchase Return are in the OUT column as inventory is leaving the business, sales return are in the IN column because inventory is returning to the business

Question 5

Identified Cost Defintion

Answer 5

a method of valuing inventory by physically marking each item in some way so that its individual cost price can be identified

Question 6

What QC’s does identified cost follow?

Answer 6

Faithful Representation as identified cost is accurate and neutral and thus provides a faithful representation of the value of the inventory

Question 7

What are two reasons a business may choose not to use identified cost method?

Answer 7

-It is not always possible to mark or label individual items of inventory
-there are administration costs in labelling individual items and recording codes and cost prices

Question 8

Inventory count definition

Answer 8

a physical count of the number of units of each line of inventory on hand

Question 9

Inventory Loss Defintion

Answer 9

an expense incurred when the inventory count shows a figure for inventory on hand that is less than the balance shown in the inventory card

Question 10

What are common causes for an inventory loss

Answer 10

• Theft
• Damage/Breakages
• Undersupply from a suppler
• Oversupply to a customer

Question 11

What column is an inventory loss in, on the inventory cards and what are the entries for it

Answer 11

It goes in the OUT column with a value stated in the question
Inventory Loss DR
Inventory CR
‘Inventory loss of item revealed by inventory count (memo 72)’

Question 12

Inventory Gain Defintion

Answer 12

a revenue earned when the inventory count shows a figure for inventory on hand that is more than the balance shown in the inventory card

Question 13

Inventory card and entries for inventory gain

Answer 13

It is in the IN column
Inventory DR
Inventory Gain CR
‘Inventory gain of quantity/item revealed by inventory count (memo 31)