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Inventory

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Inventory

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • November 13, 2016 at 10:37 am #348705
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    Dear Mike,

    Could you please help on below?

    The extract from the trial balance at 30 September 2011:

    Inventory – 4 April 2011 20000
    Cost of Sale 100000
    Material Purchase 40000
    Production labour 70000
    Factory overhead 30000

    The inventory at 30 Sept 2011 was counted and value at cost of 40000

    Required:

    Show the extracts from I/S and SFP

    Solution:

    Opening inventory 20000
    Material Purchase 40000
    Production Labour 70000
    Factory overhead 30000
    Closing inventory (40000)

    Cost of sale 120000

    Therefore

    SFP
    Inventory 20000+20000=40000

    I/S
    Cost of sale 100000+200000=120000

    it is not clear the data entry for the above transactions.

    If I increase the cost of sale the accounting entry would be

    Dr Cost of sale
    Cr?

    If I increase the Inventory the accounting entry would be
    DR Inventory

    Cr ?

    In the example above I have debited both Cost of sale and Inventory and what about the credit?

    Thanks and Regards

    Gabriella

    November 13, 2016 at 3:34 pm #348735
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    Cost of sales is not an account on its own – it’s a composite figure made up of three component elements (opening inventory, purchases and closing inventory)

    Closing inventory is a strange figure – it isn’t part of the day-to-day routing double entries

    For example, when a business buys inventory, the double entry involves a debit to the Purchases account – not to any Inventory Account

    We used to say, when I was active as a lecturer, “Inventory is its own double entry”

    An increase in Inventory in the Statement of Profit or Loss reduces Cost of Sales and therefore increases profits

    That increase in shareholders’ funds is matched by a corresponding increase in the value of the Inventory on the Statement of Financial Position

    OK?

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    Posts
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