Ch08 Acc. - Accounting For Stock

Front 1

Stock

Back 1

Goods held by a trading firm for the purpose of resale. Is of paramount important to a trading firm, as it is its main source of revenue and one of its most significant assets

Front 2

Stock card

Back 2

A subsidiary accounting record that records each individual transaction involving the movement in and out of the business of a particular line of stock. Used to determine the cost price of sales.

Front 3

First in, First Out (FIFO)

Back 3

The assumption that the stock that is purchased will be sold first.

Front 4

Why not all businesses identify cost price of their stock

Back 4

1. Some types of stock are impossible to label to label every item to identify its cost. e.g. petrol
2. Not practical e.g. individual grapes
3. Not worth the time, effort, cost to label every item of stock.

Front 5

Stock-take:

Back 5

-A physical count of the number of units of each line of stock is on hand.
-Verifies the accuracy of the stock cards and detect any stock losses and stock gains.

Front 6

Stock loss: An expense incurred when the stock-take shows a figure for stock on hand that is less than the balance shown in the stock card.

Back 6

Reasons for stock loss:
• Theft
• Damage/breakages
• Undersupply from a supplier
• Oversupply to a customer

Front 7

Stock gain: A revenue earned when the stock-take shows a figure for stock on hand that is more than the balance shown in the stock card.

Back 7

Reasons for stock gain:
• Oversupply from a supplier
• Undersupply to a customer

Front 8

Cost of Goods Sold

Back 8

All costs incurred in getting stock into a condition and location ready for sale. Costs including Customs Duty, Freight In and Cost of Sales.

Front 9

Gross Profit

Back 9

-The difference between Sales revenue and Cost of Goods Sold.
-This figure allow the owner to assess the adequacy of their mark-up.

Front 10

Adjusted Gross Profit

Back 10

-Any stock loss deducted from GP or any stock gain added to GP.
-Isolating stock loss/gain brings attention of the owner so that strategies may be developed to address any problems that are identified

Front 11

Perpetual (continuous) system of stock recording

Back 11

The recording of stock transactions in stock cards, then conducting a physical stock-take at the end of the Reporting Period to verify the balances of those stock cards. In the process, any stock losses or gains will be detected..

Front 12

Key benefits of the perpetual system

Back 12

-Reordering of stock is assisted by maintaining a continuous record of the no. of units of stock on hand
-Stock losses/gains detected by comparing balances of the stock cards against physical stock-take.
-Fast/slow moving lines of stock can be identified so that stock can be rotated or stock mix adjusted.