COS Inventory

Question 1

What are cost of sales?

Answer 1

Expenses incurred directly to earn revenue

Question 2

How is cost of sales calculated?

Answer 2

Opening inventory + Purchases/production costs - closing inventory

Question 3

What is the double entry for purchases/costs of production?

Answer 3

Credit - cash
Debit - purchases

Question 4

What is the double entry for closing inventory?

Answer 4

Credit - cost of sales
Debit - inventory

Question 5

What is the double entry for opening inventories being sold off?

Answer 5

Credit - inventories
Debit - cost of sales

Question 6

What is the double entry for making goods?

Answer 6

Credit - inventory
Debit - Cost of sales

Question 7

What is Net Realisable Value?

Answer 7

Cost of inventory - costs of making

Question 8

What does FIFO stand for?

Answer 8

First in first out

Question 9

What does AVCO stand for?

Answer 9

Average cost

Question 10

What do FIFO and AVCO impact?

Answer 10

Closing inventory

Question 11

Is delivery outwards included in COS?

Answer 11

No

Question 12

What is the double entry for recording COS?

Answer 12

Debit - COS
Credit - Purchases

Question 13

How are inventories calculated?

Answer 13

Lower of cost and NRV

Question 14

How is cost calculated?

Answer 14

Direct costs + Overheads

Question 15

How is NRV calculated?

Answer 15

Expected selling price - overheads

Question 16

In a period of rising prices, applying the first in first out (FIFO) method to determine the cost of inventories will give a lower gross profit figure than the average cost (AVCO) method.

Answer 16

False

Question 17

Is closing inventory a debit or a credit in the P&L?

Answer 17

Debit

Question 18

What could have caused a trader to achieve a lower mark-up than expected?

Answer 18

Overstating value of opening inventories

Question 19

What could cause a company’s gross profit margin to fall below expected level?

Answer 19

Incorrect inclusion in purchases of invoices relating to goods supplied in the following period