COS Inventory Flashcards
What are cost of sales?
Expenses incurred directly to earn revenue
How is cost of sales calculated?
Opening inventory + Purchases/production costs - closing inventory
What is the double entry for purchases/costs of production?
Credit - cash
Debit - purchases
What is the double entry for closing inventory?
Credit - cost of sales
Debit - inventory
What is the double entry for opening inventories being sold off?
Credit - inventories
Debit - cost of sales
What is the double entry for making goods?
Credit - inventory
Debit - Cost of sales
What is Net Realisable Value?
Cost of inventory - costs of making
What does FIFO stand for?
First in first out
What does AVCO stand for?
Average cost
What do FIFO and AVCO impact?
Closing inventory
Is delivery outwards included in COS?
No
What is the double entry for recording COS?
Debit - COS
Credit - Purchases
How are inventories calculated?
Lower of cost and NRV
How is cost calculated?
Direct costs + Overheads
How is NRV calculated?
Expected selling price - overheads
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.
False
Is closing inventory a debit or a credit in the P&L?
Debit
What could have caused a trader to achieve a lower mark-up than expected?
Overstating value of opening inventories
What could cause a company’s gross profit margin to fall below expected level?
Incorrect inclusion in purchases of invoices relating to goods supplied in the following period
