Week 2 - Accounting for Cost of Sales

Question 1

What does the accruals accounting concept state?

Answer 1

• recognise income as it is earned
• recognise expenses when the entity receives the benefit

Question 2

What does the accruals concept therefore say about cost of sales?

Answer 2

Cost of sales ‘matches’ the expense of the inventory to the sales made

Question 3

What is the formula for cost of sales?

Answer 3

Cost of sales = opening inventory + purchases - closing inventory

Question 4

How often is cost of sales calculating under the approach we will be using?

Answer 4

At the end of each year, hence why it is included in end of year adjustments