chapter 9

Question 1

what is the definition of inventories

Answer 1

goods bought by businesses to sell to their customers

Question 2

what is the definition of non-current assets

Answer 2

brought to be used within the business to generate income

Question 3

what is non-accounting information of inventory? what are some examples of it?

Answer 3

information about a business that cannot be found in the journal, ledger accounts or financial statements
1. nature of product - feature, attribute, quality
2. type of storage - different goods, require special type of storage
3. customers’ preference - motivations and behaviours which influence customers’ purchasing decisions

Question 4

what is the cost of inventory purchased and what is considered cost of inventory?

Answer 4

includes purchase and all cost incurred to bring in and get them ready for sale
- transport (shipping air freight charges)
- custom duties
- insurance for goods in transit
- packing materials
- wages for employees involved in repackaging goods

Question 5

when is a cash refund issued?

Answer 5

when a trading business returns inventory back to supplier due to defects or incorrect items and they paid by cash or cheque

Question 6

what is FIFO method

Answer 6

first in, first out
goods that are purchased first assumed to be sold first.

Question 7

what is ending inventory?

Answer 7

inventory that remains unsold at the end of accounting period/ financial year

Question 8

recording of impairment loss on inventory when NRV<cost

Answer 8

Dr impairment loss on inventory
Cr inventory

Question 9

recording cash transaction involving purchase of inventory

Answer 9

Dr inventory
Cr cash at bank / cash in hand

Question 10

recording credit transaction involving purchase of inventory

Answer 10

Dr inventory
Cr trade payable

Question 11

recording cash transaction involving return of inventory

Answer 11

Dr cash at bank/ cash in hand
Cr inventory

Question 12

recording credit transaction involving return of inventory

Answer 12

Dr trade payable
Cr inventory

Question 13

recording cash transaction involving purchase of inventory (cost of sales)

Answer 13

Dr CAB/ CIH
Cr sales revenue
or
Dr cost of sales
Cr inventory

Question 14

recording credit transaction involving purchase of inventory (cost of sales)

Answer 14

Dr TR
CR sales revenue
or
Dr cost of sales
Cr inventory

Question 15

recording cash transaction involving return of inventory (cost of sales)

Answer 15

Dr sales return
Cr cash at bank / cash in hand
or
Dr inventory
Cr cost of sales

Question 16

recording credit transaction involving return of inventory (cost of sales)

Answer 16

Dr sales returns
Cr TR
or
Dr inventory
Cr cost of sales

Question 17

what is prudence theory

Answer 17

inventory is valued at the lower of cost and net realisable value to ensure that inventory is not overstated.

Question 18

what is the accounting information for which inventory to buy?

Answer 18

• info generated by business accounting information system
  1. cost of inventory
  2. storage cost
  both affects total cost of inventory