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ACCT 1011 > Week 5 > Flashcards

Week 5 Flashcards

1
Q

Inventories are

A

Assets.

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2
Q

Inventories are assets that

A

(a) held for sale in the ordinary course of business;
(b) in the process of production for such sale; or
(c) in the form of materials or supplies to be consumed in the production process or in the rendering of services.

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3
Q

What is recorded when the sale of goods occurs?

A
  • the sales transaction itself

- the Cost of Sales (COS)

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4
Q

Profit =

A

Income - Expenses

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5
Q

Gross profit -

A

Sales Income - Cost of Sales

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6
Q

Profit =

A

Gross Profit - Expenses

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7
Q

What is the definition of the Perpetual Inventory System?

A

A perpetual inventory system involves a CONTINOUS record of

  1. the physical quantities and costs of inventory on hand, and
  2. the physical quantities and costs of inventory sold.

The cost of inventory purchased is recorded as an asset at the date of purchase.

When the inventory is sold, the
cost expires and is recorded as cost of sales expense

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8
Q

Per the Perpetual Inventory System, what is recorded when inventory is purchased?

A

The cost of inventory purchased is recorded as an asset at the date of purchase.

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9
Q

Per the Perpetual Inventory System, what is recorded when inventory is sold?

A

When the inventory is sold, the cost expires and is recorded as the cost of sales expense.

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10
Q

What is the definition of the Periodic Inventory System?

A

In a periodic inventory system, a CONTINOUS record of the:
1. cost of inventory purchased is maintained.

The cost of sales is then determined by deducting the cost of ending
inventory from the cost of goods available for sale. A physical stock take isneeded

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11
Q

Periodic Inventory System: What is the formula for Cost of Goods Available for Sale?

A

COGS = Purchases + O/B Inventory

The total purchases are added to the cost of opening inventory to determine the cost of goods available for sale.

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12
Q

Periodic Inventory System: What is the formula for Cost of Sales?

A

COS = COGS - C/B Inventory

The cost of sales is then determined by deducting the cost of ending inventory from the cost of goods available for sale.

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13
Q

Periodic Inventory System: Is a stock take needed? Why (not)?

A

A physical stock take is needed to determine the C/B Inventory, which is needed to calculate COS.

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14
Q

When is the Periodic Inventory System generally used?

A
  1. Large volume low-cost inventory

2. Cost of maintaining a perpetual system would be relatively high

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15
Q

What is the COS calculation for Periodic Inventory System?

A 
COS = O/B Inventory + Purchases - C/B Inventory
COS = COGS - C/B Inventory
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16
Q

What is the Cost of Beginning Inventory?

A

Inventory asset account at the beginning of the period.

17
Q

What is the Cost of Purchases?

A

Cost of Purchases is accumulated during the period in a temporary expense account.

18
Q

What is the Cost of Ending Inventory? How is it determined in the Periodic Inventory System?

A

Inventory asset account at the end of the period.

Per the Periodic Inventory System, the Cost of Ending Inventory is determined by physical stocktake at the end of the period x cost price.

19
Q

Perpetual Inventory System: Is a stock take needed? Why (not)?

A

Yes, to verify ending inventory

20
Q

What are 3 key features of the Perpetual Inventory System?

A
  1. CONTINUOUS RECORD of INVENTORY ON HAND and COS
  2. Physical stock take ONLY to VERIFY ending inventory
  3. a COS account.
21
Q

What are 3 key features of the Periodic Inventory System?

A
  1. a PHYSICAL STOCK TAKE is required
  2. a PURCHASES account
  3. the COS is a RESIDUAL AMOUNT
22
Q

Which inventory system uses a PURCHASES account?

A

Periodic Inventory System

23
Q

Which inventory system uses a COS account?

A

Perpetual Inventory System

24
Q

What is the definition of COS?

A

The costs of acquiring goods and placing them in a condition suitable for sale.

25
Q

What is the definition of Gross Profit?

A

The difference between NET SALES and the COST OF GOODS SOLE.

The term gross indicates that this is the amount available to meet all other expenses and to provide for profit.

26
Q

What are Selling and Distribution expenses?

A

Expenses resulting from efforts to store, sell and deliver goods to customers.

27
Q

What are Administration expenses?

A

Outlays associated with the general administration of the entity.

Frequently, expenses that are common to both administrative and selling activities are apportioned between the two. But, where this is considered too expensive, or impracticable, the particular item is usually classified as administrative

28
Q

What are Finance and Other expenses?

A

Expenses incurred in relation to the financing of the enterprise, collecting debts and running the credit department.

29
Q

In a fully classified Income Statement, what are the 3 expense categories?

A
  1. Selling and Distribution
  2. Administration
  3. Finance and Other
30
Q

What are cash (settlement) discounts?

A

An incentive to encourage prompt payment
• terms indicated on sales invoice eg. 2/10, n/30
• usually deducted by the purchaser on payment

31
Q

Summarise the Perpetual Inventory System

A
  1. Involves keeping a running record of each purchase and sale
  2. The inventory account and COS account is updated after every purchase or sale
  3. As a result, the balance in the inventory account is the ending inventory amount.
  4. A stocktake is performed to verify the accuracy of this recorded ending inventory
  5. If the recorded inventory and the stocktake differ, then an entry to record the correct amount needs to be processed.
32
Q

Summarise the Periodic Inventory System

A
  1. No running record of each purchase and sale
  2. Additional inventory purchased is recorded in the “Purchases” account, instead of the Inventory account (Perpetual)
  3. The balance in the inventory account, therefore, does not change until the end of the accounting period
  4. A stocktake is performed to determine the closing inventory balance
  5. This closing balance is then used to determine the Cost of Sales
33
Q

If you are using a Periodic system, you will have a ________________ account in your Trial Balance

A

Purchases

34
Q

If you are using a Perpetual system, you will have a _________ account in your Trial Balance

A

Cost of Sales (COS/COGS)

ACCT 1011 (10 decks)

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