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Definition
Para 5 FRS 102 Inventories are assets: 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 services
CLASSIFICATION
Para 11 FRS 102
Inventories should be measured at the lower of cost and Net Realizable value Net Realizable Value (NRV) is 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.
Continued
In a periodic system, stock accounts at the beginning and at the end of the period. Any stock movement eill be recorded as follows:
Sales:
Debit Debtor Credit Sales (Being credit sales)
Continued
Sales:
Debit Debtor Credit Sales (Being credit sales)
Continued
Return inwards Debit Return inwards Credit Debtors (Being the return of goods sold)
Return outwards Debit Creditor Credit Return outwards (Being credit purchases)
Continued
At the end of a period, stock will be calculated manually and the value is recorded in a closing stock account. The same amount will be credited to Trading account to calculate the cost of goods sold.
Debit Closing stock Credit Trading (Being the closing stock at the end of a period)
Continued
Cost of goods sold will be calculated because there is no record kept. The calculation is
Opening Stock Add: Purchases
Cost of goods available for sale Less: Closing Stock COST OF GOODS SOLD
XXX XXX
XXX XXX XXX
In this stock system, a stock account is opened throughout the period to record about the stock movement. A Cost of Goods Sold account will be opened to record the cost of goods that has been sold. Unlike the periodic system, the value of cost of goods sold and the closing stock is really available in the books.
Continued
Any stock movement will be recorded as follows: Sales Debit Debtor Credit Sales (Being credit sales)
Debit Cost of Goods Sold Credit Stock (Being the cost of goods sold)
Continued
Purchases
Return inwards Debit Stock Credit Debtor (Being the amount returned from customers)
Continued
Return outwards
Purchases
Creditor
EFFECT
Increase in Assets of stocks Decrease in Assets of cash
DEBIT
Purchases
CREDIT
Cash
Debtor Sales
EFFECT
Increase in Assets of cash Decrease in Assets of stocks
DEBIT
Cash
CREDIT
Sales
Return outwards
EFFECT
Increase in Assets of cash Decrease in Assets of stock
DEBIT
Cash
CREDIT
Return outwards
CONTINUED
RETURN INWARDS FROM CREDIT SALES EFFECT Increase in Assets of stocks DEBIT Return inwards CREDIT
Debtor
EFFECT
Increase in Assets of stocks Decrease in Assets of cash
CREDIT
Cash
Sold goods
CUSTOMER (DEBTOR)
ABC
Return outwards
Return inwards
CONTINUED
STOCKS/GOODS
INCREASE (+)
DECREASE (-)
Purchase of goods
Return inwards
Sales of goods
Return outwards