Inventory Flashcards
Closing inventory DE
Dr Inventory (BS)
Cr Closing inventory/COS (IS)
When is only recorded in the accounting system?
At the end of the accounting period
How is closing inventory found out?
Stock take
What will need to be done if stock take done long before closing date?
Adjustment for inventory movements until period end
What may inventory include?
Raw materials
WIP
Finished goods
IAS 2 inventories: Inventory included in statement of financial position as (what is the rule?)
Lower of Cost and Net Realisable Value
For each product line of inventory (on a line by line basis)
Cost
All expenditure incurred in bringing the product or service to its present location and condition
Cost includes
Purchase:
Materials
Import duties
Freight
Costs of conversion
Direct costs
Production overheads
Net Realisable Value
Revenue expected to be earned in the future when the goods are sold, less any selling costs or rectification/modification costs to enable sale
Accounting for goods no longer in inventory (stolen or destroyed)
- Original cost removed from purchases
- Cost of goods charged as a P&L expense
- Any insurance receipt treated as other income
Why is goods no longer in inventory accounted for differently?
Because charging total to cost of sales would distort gross profit
Which inventory valuation methods are allowed by IAS 2?
- FIFO
- AVCO
(Not LIFO)
AVCO calculation
- Weighed average for all units in inventory calculated
- New average calculated after EVERY PURCHASE of goods
Drawings of inventory DE
Dr Drawings
Cr Purchases
Both using same cost - of inventory taken
Cost structure definition
Relationship between:
1. Sales price
2. Cost of sales
3. Gross profit margin
