week 6 Flashcards
what is the problem with bookkeeping inventory
does not record flow of inventory or how much inventory we have at one time
what is an expense
costs consumed in delivering goods or services to customers
how do you calculate closing inventory
opening inventory + purchases - cost of sales
how do you record closing inventory
record number of each inventory through a periodic count or a perpetual inventory control system
what is a perpetual inventory control system
computerised recording of all deliveries and usage of each item
inventory is recorded as it is sold, at year end there is a record of all inventory sold
what are the inventory cost flow assumptions
specific cost of a unit of inventory that has been sold should be used
isn’t always possible if there isn’t a reliable record of each individual item purchased and sold where costs vary or there is fungible inventory
what is fungible inventory
identical goods where it is not possible to identify the particular batches of purchases in inventory items are interchangeable
what is the first in first out method
goods sold are assumed to be those which have been in the inventory for the longest time
first (oldest) inventory is first to be used
as a result, closing inventory will be valued at the cost of the most recent purchases
what is the last in first out method
goods sold are assumed to be those which have been in the inventory for the shortest time
may reflect the physical movement of goods in some circumstances
not allowed by UK tax authorities, leads to lower inventory valuation when prices rise
what is the weighted average method
goods sold are assumed to consist of a mixture of each batch of purchases
justified when prices are changing frequently, so is allowed
how do you value inventory when NRV is below cost
entities have to adjust inventory values where net realisable value is below cost for any individual item
may occur where inventory is damaged, slow-moving or obsolete
the impact of this is to increase cost of sales and reduce total inventory value
how do you calculate COGS with inventory
opening inventory + purchases - closing inventory
how do you bookkeep for irrecoverable receivables
the double entry bookkeeping system records sales revenues when the business entity delivers goods or services to a customer
what is accounting complexity
what happens if a customer doesn’t pay or we have concerns about their ability to pay
not directly part of double entry bookkeeping, need to make an adjustment
what are irrecoverable debts
arise when a trade receivable is unable to pay the amount they owe in respect of goods sold to them on credit
a debt may be irrecoverable if the customer cannot be traced, not worth taking to court or the customer has been declared bankrupt
