Chapter 8 Inventory

Question 1

What is periodic Inventory records?

Answer 1

Inventory movement is considered once annually (mostly). Using the change of inventory the amount of sales can be calculated this is known as PERIODIC INVENTORY RECORDS.

Question 2

What is inventory?

Answer 2

It contains both the raw materials to produce goods and finished product ready for sale

Question 3

What is the matching concept?

Answer 3

Inventory cost are matched to the revenues they help generate.

The carrying forward of unused Inventory is the application of the accruals concept.

Question 4

How is cost of sales and gross profit calculated ?proforma

Answer 4

Revenue x

opening inventory x
Purchases x
less: Closing Inventory (x)

Cost of sales (x)
_________
Gross profit xxxx

Question 5

Cost of sales?

Answer 5

The amount of money required to produce a commodity.

Opening Inventory + Purchaces - closing inventory.

Question 6

Gross profit?

Answer 6

Revenue generated - cost of sales.

Question 7

Where will closing inventory appear?

Answer 7

It will appear on statement of financial position as an asset.

Question 8

Year end Inventory adjustments?

Answer 8

Closing inventory brought from previous year assumed to generate asset for sales will become opening inventory and recognized as EXPENSE. (As not sold of it becomes expense)

Dr opening inventory in cost of sales
Cr Inventory assets

The unused inventory at the end of the year is removed from expense and carried forward as an asset into the next year.

Dr Inventory assets
Cr opening inventory in cost of sales
_______________________________________________________________
End of the year
Inventory closing—– Expense to Asset

Moved to next year

During the year
Opening Inventory——-Asset to Expense

Question 9

Cost of sales/ Cost of goods account? COGS

Answer 9

This is an expense account as it is the amount used by the business to create goods. COST of production.