Week 7 - Topic 7 - Accounting for Inventory Flashcards
Define ‘ Service entities’?
Those that offer a service to their clients to generate income (examples include hairdresser, tutor, painter)
Define ‘Trading entities’?
One that sells stock or inventory to customers to earn income. (Examples include manufacturers, retailers and wholesalers)
What is the relationship between inventory sold and assets/liabilities?
The carrying amount of those inventories shall be recognised from an asset to an expense in the period in which the related revenue is recognised.
What is the ‘Weighted Average’ in terms of accounting?
Inventory is calculated at a weighted average of prices paid for inventory during the period.
What does a stocktake do?
A stocktake verifies the inventory ledger balance, typically done annually
What is ‘Inventory’? Explain?
a valuable asset that must be well-managed to sell at a profit, but factors like demand, trends, competition, poor management, and spoilage can affect this.
Define ‘Net Realisable Value (NRV)’?
The estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Define ‘Sales Revenue’?
The main source of revenue for merchandising businesses is the sale of inventory.
Define ‘Cost of Sales’?
The total cost of inventory sold during the period.
Define ‘Perpetual Inventory System’?
detailed records of the cost of each inventory purchase and sale are maintained.
Define ‘Periodic Inventory System’?
Detailed inventory records of the goods on hand are not kept throughout the period.
Define ‘Supplier’s invoice’?
a document evidencing the supplier’s claim against the purchaser.
What is ‘Freight-in’?
delivery/transportation costs.
What does ‘Sales invoice’?
provides support for a credit sale.
What’s the formula for ‘Net sales’?
Net sales = sales returns and allowances - sales in the statement from profit or loss.
What’s the formula for ‘Gross Profit’?
Gross Profit = cost of sales - sales revenue
