Stock Card Questions

Question 1

Trading firms and stock

Answer 1

Trading rms purchase goods from suppliers/wholesalers and then sell them to customers at a higher price, with the difference between the cost price and the selling price earning them profit. These goods that are sold are, from the trading business’ point of view, referred to as stock.

Question 2

Why is stock so important to trading firms

Answer 2

Sale of stock is the main source of revenue for a trading rm, and thus the key to its ability to earn pro t.

Question 3

Perpetual inventory system

Answer 3

system of accounting for stock that involves the continuous recording of stock movements in stock cards

Question 4

Sales and purchases

Answer 4

Sales
the revenue earned by a trading firm from the sale of stock
Purchases
the stock bought by a trading firm for the purposes of resale

Question 5

Why is the GST paid to a supplier not part of the valuation of stock

Answer 5

The GST paid to the supplier is not part of the valuation of stock because the benefit will not be realised when the stock is sold, but when the GST payable (or receivable) is settled.

Question 6

Cost of sales

Answer 6

However, at the same time cash is owing in to the business, stock is also owing out; this means that the stock is no longer an asset, because it is gone! In fact, the provision of stock to the customer creates an expense called Cost of Sales – an out ow of an economic bene t (the stock that has been sold) in the form of a decrease in assets (Stock), thus decreasing owner’s equity. This amount will b

Question 7

Why is the sale of stock a revenue

Answer 7

When stock is sold, the business will receive cash for the sale, and this sales gure will be recorded as revenue, because it is an in ow of economic bene ts (cash) in the form of an increase in assets (Bank), thus increasing owner’s equity. This amount will be recorded at selling price.

Question 8

Gross profit

Answer 8

the profit earned purely from the purchase and sale of stock, measured by deducting Cost of Sales from Sales revenue

Question 9

How to calculate cost of sales using a stock card

Answer 9

By adding up all the gures in the OUT column that relate to sales, the business can determine its total Cost of Sales for that item for the period.

Question 10

FIFO

Answer 10

First In, First Out (FIFO)
the assumption that the stock that is purchased first will be sold first

Question 11

Stocktake

Answer 11

The process of counting every item of stock on hand to verify the accuracy of the stock cards and detect any stock loss or gain.

Question 12

Role of stocktake

Answer 12

The role of a stocktake is thus to verify the accuracy of the stock cards so that the stock gure reported in the Balance Sheet is free from bias (i.e. Reliable), and in the process, detect any stock loss or stock gain.

Question 13

Stock loss

Answer 13

A stock loss occurs when the physical stocktake reveals a quantity of stock less than the quantity indicated on the stock cards. This can occur because of:
• theft
• damage
• an over-supply to customers
• an under-supply by suppliers
• a recording error in the stock cards or during the stocktake.

Question 14

What source document is put in the details section of a stock card for stock gains or losses

Answer 14

The result of the stocktake will be recorded on a memo, an internal accounting document, and passed to the accounting department so that the records can be updated.

Question 15

Stock gain

Answer 15

A stock gain occurs when the physical stocktake reveals a quantity of stock on hand greater than the number indicated in the stock card. This can occur because of:
• • •
an under-supply to customers
an over-supply by suppliers
a recording error in the stock cards or during the stocktake.

Question 16

4 benefits of the perpetual system

Answer 16

Assists in the reordering of stock
Fast and slow moving lines of stock can be identified
Stock losses and gains can be detected
Interim reports can be prepared without the need of physical stocktakes

Question 17

Assists in the reordering of stock

Answer 17

The stock cards will show when the minimum
stock levels have been reached so an order can be placed with the supplier.

Question 18

Fast and slow moving lines of stock can be identified

Answer 18

The owner can examine the stock cards to identify the items which are selling well and those that are not and
adjust stock purchases accordingly.

Question 19

Stock losses and gains can be detected

Answer 19

by comparing the balances of the stock cards against the physical stocktake.

Question 20

Interim reports can be prepared without the need for physical stocktakes

Answer 20

The level of stock on hand and the amount of Cost of Sales can be determined from the stock cards (although the level of stock loss or gain will not be known).

Question 21

Stock card

Answer 21

a subsidiary accounting record that records each individual transaction involving the movement in and out of the business of a particular line of stock

Question 22

Purpose of FIFO

Answer 22

Unless stock is marked or identi ed in some way, it is not possible to identify whether the customer has taken from the shop T-shirts worth $4.50 per unit or $5 per unit. For this reason we must assume that the stock that was purchased rst will be sold rst otherwise stock cards and accounting reports will not be able to be created.