Accounting Grd 11 Introducing Inventory Systems S3
Summary
TLDRIn this lesson on inventory systems, two methods are explored: periodic and perpetual inventory systems. Key concepts include the use of a purchases account in the periodic system and a trading stock account in the perpetual system. The calculation of cost of sales involves adding opening stock, net purchases, and related expenses, then subtracting closing stock. Practical examples demonstrate these calculations, emphasizing the importance of understanding financial indicators such as gross profit on cost of sales and gross profit on turnover. The lesson concludes with tips for examination techniques and a motivational note to accounting students.
Takeaways
- 📚 The script discusses two inventory systems: Periodic and Perpetual Inventory Systems.
- 🛒 The Periodic Inventory System records all goods purchased in a 'Purchases Account'.
- 🔄 The Perpetual Inventory System records goods purchased in a 'Trading Stock Account'.
- 📈 The script provides a practical example to calculate the 'Cost of Sales' on the last day of an accounting period.
- 🔢 The formula for 'Cost of Sales' includes Opening Stock, Net Purchases, Purchases Expenses, and Closing Stock.
- 💼 Net Purchases are calculated by adjusting for creditors allowances, goods returned, donations, and drawings of stock.
- 📦 Purchases Expenses include costs like customs and import duties that increase the cost of goods.
- 🚫 'Carriage on Sales' is not included in the 'Cost of Sales' calculation but is an operating expense.
- 🔑 The script emphasizes the importance of showing calculations to avoid errors and potentially gain part marks.
- 📉 The 'Gross Profit' is calculated by subtracting the 'Cost of Sales' from 'Sales'.
- 📊 Financial indicators such as 'Gross Profit on Cost of Sales' and 'Gross Profit on Turnover' are used to find missing figures and assess profitability.
- 🌟 The script concludes with a motivational note encouraging accounting students to aim high in their studies.
Q & A
What are the two inventory systems discussed in the script?
-The two inventory systems discussed are the periodic inventory system and the perpetual inventory system.
What is the main difference between the periodic and perpetual inventory systems?
-The main difference is that the periodic system deals with a purchases account for all goods bought, while the perpetual system uses a trading stock account to record goods purchases.
What is the formula for calculating the cost of sales according to the script?
-The formula for calculating the cost of sales is: Opening stock + Net purchases + Expenses on purchases - Closing stock.
What are the components of net purchases in the cost of sales calculation?
-The components of net purchases include purchases less creditors allowances, goods returned, donations, and drawings of stock, if applicable.
Why is carriage on sales not included in the cost of sales calculation?
-Carriage on sales is not included in the cost of sales calculation because it is considered a normal operating expense that goes to the profit and loss account.
What is the term used for the goods available for resale in the cost of sales calculation?
-The term used is 'merchandise available for resale'.
How is the missing purchases figure calculated in the provided example?
-The missing purchases figure is calculated by subtracting the carriage on purchases and the opening stock from the merchandise available for resale.
What is the cost of sales for the example given in the script?
-The cost of sales for the example is 500,000 rand, calculated by subtracting the closing stock of 35,000 from the merchandise available for resale of 535,000.
What is the purpose of showing calculations in an examination setting?
-Showing calculations helps in case of errors, as partial marks can be awarded for the correct steps taken in the calculation process.
How is the gross profit percentage on cost of sales calculated in the script's example?
-It is calculated by dividing the gross profit by the cost of sales and expressing the result as a percentage.
What is the significance of financial indicators in the context of the script?
-Financial indicators such as gross profit on cost of sales and gross profit on turnover are used to calculate certain figures and to find missing figures in accounting.
Outlines
📊 Overview of Inventory Systems
The video introduces the periodic and perpetual inventory systems, highlighting their key characteristics. The periodic system uses a purchases account to track goods, while the perpetual system uses a trading stock account. The segment aims to put theory into practice through an example, focusing on the calculation of cost of sales on February 29, 2020.
🔢 Calculating Cost of Sales
The script details the calculation of cost of sales, starting with the opening stock, adding net purchases (purchases minus returns, donations, and drawings), and adding expenses like customs duties. The total, minus the closing stock, gives the cost of sales. The script emphasizes the importance of excluding carriage on sales from this calculation and treating it as an operating expense.
📉 Practical Example: Missing Figures
A practical example is provided to calculate missing amounts and percentages from accounting records. The example includes finding unknown purchases and cost of sales, and emphasizes showing calculations in exams for partial credit. Detailed steps demonstrate the calculation of cost of sales from given figures, reinforcing the importance of understanding the layout of these calculations.
💰 Gross Profit and Financial Indicators
The segment explains how to calculate gross profit as a percentage of cost of sales and turnover. Using an example, the video demonstrates calculating the gross profit percentage and markup, and emphasizes the importance of financial indicators in determining these values. The relationship between cost price, markup, and selling price is illustrated with a simple table.
🧮 Summarizing Inventory Calculations
The final summary recaps the key steps in calculating cost of sales using the periodic inventory system: starting with opening stock, adding net purchases and expenses, and subtracting closing stock. It stresses the need to understand and use financial indicators to find missing figures, reinforcing the lesson's main points. The segment closes with motivational remarks, encouraging viewers to aim high in their accounting studies.
Mindmap
Keywords
💡Inventory Systems
💡Periodic Inventory System
💡Perpetual Inventory System
💡Cost of Sales
💡Opening Stock
💡Purchases Account
💡Net Purchases
💡Carriage on Sales
💡Closing Stock
💡Gross Profit
💡Gross Profit Percentage
Highlights
Introduction to two inventory systems: periodic and perpetual inventory systems.
Characteristics of the periodic inventory system, including dealing with a purchases account.
Characteristics of the perpetual inventory system, with a trading stock account for goods purchases.
Practical example to calculate the cost of sales using inventory information.
Explanation of the cost of sales calculation formula, including opening stock, net purchases, and expenses on purchases.
Clarification on not including carriage on sales in the cost of sales calculation.
Demonstration of calculating merchandise available for resale by adding opening stock, purchases, carriage, and customs duties.
Subtraction of closing stock from merchandise available to find the cost of sales.
Emphasis on showing calculations for examination purposes to gain part marks.
Business scenario with missing figures to be calculated from given accounting records.
Method to calculate missing purchases figure using available goods for sale, carriage, and opening stock.
Verification of calculated purchases figure through a reverse calculation.
Determination of cost of sales by subtracting closing stock from goods available for sale.
Calculation of gross profit percentage on cost of sales using the formula.
Importance of using financial indicators such as gross profit on cost of sales and turnover.
Summary of inventory calculations and the use of financial indicators for missing figures.
Encouragement to aim high in accounting with a metaphorical reference to the moon.
Transcripts
[Music]
welcome
accounting boffins remember we're
dealing with
inventory systems a quick recap
the two systems that we are dealing with
will be one
your periodic inventory system
right and you always you've now noticed
that it has certain characteristics
and what are those characteristics one
the periodic system
deals with a purchases account where
everything regarding the goods that we
are buying
goes into my purchases account
right number two we also dealt with
the perpetual inventory system and
when we dealt with the perpetual
inventory system remember
we're dealing with a trading
stock account where everything regarding
the goods that we are buying
gets recorded in my trading stock
account okay now let's put into practice
what we have discussed so far let's do
an actual example
right here goes required
use the information
use the information to calculate the
cost of sales
on the last day of the accounting period
the 29th of february
2020 right now we've all
in our previous segment we had an
elaborate discussion
on the calculation of cost of sales
right let us just recap let's look at
the format remember i said
this format is something that you must
learn
what goes into the calculation of my
cost of sales number one opening stock
right to it you add your purchases
remember it is your net purchases in
other words
take your purchases figure less your
creditors allowances
goods that were returned less your
donations
if applicable less your drawings of
stock
if applicable so obviously those would
only be applicable if they
have taken place that will then give you
your net purchases what do we now do
we now add the expenses on purchases
like what
customs duties import duties any expense
that will lead to an
increase in the cost of my goods so
whenever i've purchased the goods
any cost that i that that would involve
me
bringing that good to my business
would increase the cost price of that
good okay
add all of that together less your
closing stock
will give you cost of sales what's the
look out here
the lookout is carriage on sales
if it is given it is not applicable
to my calculation of my cost of sales
and will therefore
not be used rather it's a normal
operating expense
that will go to my profit and loss
account
okay so there we go
we've got our stock at the beginning of
the year we've got our purchases we've
got
carriage on purchases we've got customs
duties
there's my opening stock there's my
purchases
there's my carriage and purchases
customs duties
and obviously my closing stock
look at my calculation you start off
with your opening stock
right let me just redo that
here we go here's my
opening stock
i add my purchases component to it
i add my carriage on purchases to it
i add my customs duties to it
all of these all of these components
when we add them together it gives us a
figure
which we call merchandise available
for resale in other words
what you see here is your goods
available for resale
is the 535 000 how did we get that
we took the 60 plus the 450 which is 510
plus the 20 which is 530 plus the five
which will give me
535 000. okay
you now subtract what you subtract
you subtract your closing stock
because remember that's the stock that's
still on our shelves
we didn't sell that goods those goods
are still available and remember what we
said early on
your closing stock of this year will
become your
opening stock of the following
calculation
next year's opening stock will now be 35
000. but for now
in this year's closing stock 535 000
minus your 35 000 will give you
your cost of sales figure as you can
clearly see
is 500 thousand rand
so what do you remember in this
calculation
you add that plus that
plus that plus that to be equal to your
merchandise available for resale
you only subtract your cost of sales
which is at the end sorry you only
subtract your closing stock
at the end of the year which will then
give you your
cost of sales now remember something
else
this purchases figure here
if there are calculations that you have
to show
then it is imperative that you draw up
a small calculation for yourself and you
show it as part of your answer
so if there was creditors allowances or
donations
or drawings of stock all of that would
be shown
in your bracket right so
as a as an examination technique
always show your calculations because
perchance if you make an error
you can get part marks for a final
answer
okay
we now come to a business and we are
told the following information
was taken from the accounting records of
a business
calculate the unknown amounts and
percentages
on the 29th of february 2019.
okay let's see what we have here
we have opening stock
purchases is an unknown
carriage and purchases is given your
goods available for sales is given
your closing stock is given right
obviously your cost of sales is another
required figure
your gross profit is given your sales is
given
your gross profit on cost of sales as a
percentage
is an unknown and your gross profit on
turnover
is a given figure so obviously
based on the information that you have
you now
have to calculate a missing figure now
remember
that initial calculation for cost of
sales
it is of utmost importance that you know
that component or you know the layout
as you will see just now so
we start off by saying let's take the
198
000 right which is my goods available
for
resale there's it right so
we take 198 000.
minus the carriage on purchases
of 8 000 minus the 8 000
right as you can see i'm i'm i'm working
here
with the carriage on purchases as the
first calculation
so i'm working with a reverse operation
i'm taking my 198 000
minus the 8000 right
and then i say minus the opening stock
of sixty thousand so there i'm bringing
in my opening stock figure
which is a sixty thousand minus the
sixty thousand
right and that will be equal to a
hundred and
thirty thousand so my missing figure
here will be
my purchases figure of
a hundred and thirty thousand in other
words
if you now look at it here you can
clearly see
and let me show you this operation so
that you know what i'm talking about
watch sixty thousand plus the hundred
and thirty thousand
plus the eight thousand will give me a
hundred and
ninety eight thousand let's check that
on the calculator
so we know absolutely we know we know
what we are doing is correct
so we go 60 000 right
plus 130 000
plus 8 000
will give me 198 000 and that's the
figure
that was given to me so in this way i
calculated
my missing component and my missing
component there
was my purchases figure which was denoit
which was denoted
as a right okay
moving on the next calculation
we've done this one here is i have to
now calculate let's see what was it
i needed the cost of sales figure right
so this was my calculation now
so obviously obviously based on our
previous format
what do we remember your merchandise
available for resale
which is the goods available for resale
198 000
minus the cost the closing stock figure
of 55 000 ran remember the stock that is
unsold
at the end of the year amounts to 55
000 grand so taking my calculator once
again
i've got my 198 000 minus
the 55 000 and that will give me a
figure of
143 000 rent so in other words you can
see here
143 000 rent
will be my cost of sales and
if i now look at it there's my
calculation 198
000 minus the 55 000 to give me
a hundred and forty three thousand ran
watch
in my calculation i can clearly see
their closing stock was subtracted
and that's the operation that you must
take into consideration
that you subtract your closing stock at
the
end of your financial year okay
now moving forward we are asked to also
calculate
c now what is c c says
gross profit on cost of sales remember
this is
we want to calculate a percentage year
therefore what are we going to be doing
now right
the indicator says gross profit on
cost of sales let's identify
what is my gross profit my gross profit
is 71
500 okay so my gross profit
is 71 500 they want it expressed as a
percentage of
cost of sales and
your cost of sales is something that you
have calculated
to be a hundred and forty three thousand
rand
okay so now watch my calculation
i start off by saying
take your gross profit
over your cost of sales and express it
as a
percentage right let's identify
gross profit 71 500
therefore 71 500
over my cost of sales let's identify
cost of sales 143 000
clearly you can see over 143 000
multiplied as a percentage let's do that
on our calculators
so what do we do it is
71 500
times a hundred
divided by a hundred and forty three
thousand
this will now give me my markup
percentage
of fifty percent
right so if i look at this year now
i can see that i took my
there we go i took my cost of sales
over my my sorry i took my gross profit
over my cost of sales times 100 over 1
and there i got my answer of 50 so in
other words
this business is marking up its goods by
50 percent on cost in other words
remember the table that you always draw
up i've always asked you to draw up this
table
what is a stable year it will look like
the following cost price
is equal to a hundred your markup
is equal to 50 therefore your selling
price
is equal to 150 okay
now if we look at this information here
you can see that your gross profit
percentage on turnover
is given to you as 33
right so depending on what the question
asks for you must be able to use
financial indicators to also calculate
certain figures and that is why
it's important to be one calculate the
girl's profit
number two see whether it ties in with
your
with your financial indicator here i'm
referring to
the gross profit percentage as a cost of
sales and
your gross profit on turnover as well
okay let us now summarize what we have
done
in this very important segment on
inventories
one periodic inventory you have to do a
calculation
for your cost of sales and what is that
calculation
it is your opening stock plus
your net purchases plus
you add all your expenses on your
purchases that will then give you
your merchandise available for resale
you subtract your closing stock
and that then gives you your cost of
sales figure
once you've determined your cost of
sales figure it will be your sales
less your cost of sales to give you your
gross profit also remember that
in this section as well you must be able
to use
your financial indicators the two that
we dealt with here were
your gross profit on cost of sales and
your gross profit on
turnover you must be able to calculate
them and
you must be able to use them to find
missing figures
that's it from today's lesson accounting
boffins out there
from me ashraf and the team like we
always say
aim for the moon perchance if you don't
get there you definitely will be
an accounting shining star until the
next time
be good
[Music]
[Music]
you
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