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when we set up cost of sales a/c ? we set up it only for recording of destroyed and stolen goods? would you explain the cost of sales a/c comprehensively please? when we set up it? what do we record in it?
There is no need for a cost of sales account.
We have a purchases account and an inventory account – not a cost of sales account.
Have you watched the lectures?i have readen the ACCA-F3 book. it shows when stolen goods occur, then we record it as following:
Dr – expence
Cr – cost of sales. is this wrong?additionally you say that we record it in inventory a/c, but if i dont mistake we set up the inventory a/c for recording of ONLY opening and clothing inventory, am i right?
I did not say that we record stolen goods in the inventory account, I said that we only need a purchases account and a cost of sales account.
In practice, if the business is computerised, then they may have a cost of sales account, but you never need one in exams.The only time you will see it mentioned is when there are stolen goods such as your response – even then you will never be asked for the t-account itself. The point is that we reduce the cost of sales on the profit statement in order to show the correct gross profit, and we charge it as an expense in arriving at the net profit.
There is not an actual need for an entry in the t-accounts themselves – the final profit is unaffected. The adjustment in the profit statement is simply to show the correct gross profit which would otherwise be distorted.
let us assume that in the end of the period we should have inventory costing of 1000$ , but we determine that we have inventory of 800$, goods costing of 200$ has been stolen. now i ask that , when we want to calculate cost of sales and gross profit, we should take into account the value of inventory as 1000$ or 800$ ?
example:
Sales – 2500$
Open. inventory – 500$
Purchase – 1700$
clothing inventory – 1000$ ( before we find out the stolen goods)
Stolen goods – 200$
Gross profit = 2500-(500+1700-1000) = 1300 or 2500-(500+1700-800)=1100 ???The gross profit will be 2500 – (500 + 1700 – 800 (inventory) – 200 (stolen)) = 1300
That gives the gross profit on what was actually sold.
However, 200 is then charged as an expense, so the net profit (ignoring any other expenses would be 1100.
🙂
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