Grade 11 Accounting Term 3 | Inventory System | Part 1 of 2024

Summary

This video tutorial introduces the concept of inventory systems, focusing on two main types: periodic and perpetual, and their applications in small and large businesses, respectively. It explains the differences in recording inventory, cost of sales treatment, and the manual versus automated processes. The script also provides a practical example of calculating total purchases and drafting a trading account for a small business using a periodic inventory system, offering insights into the accounting process and study resources for further learning.

Takeaways

• 📚 The video introduces an inventory system, a topic in accounting that includes cash budgeting and cost accounting, specifically for manufacturing.
• 📈 There are two main inventory systems discussed: the Periodic Inventory System and the Perpetual Inventory System.
• 🏪 Periodic Inventory System is typically used by small businesses like a P shop, which does not use computers or software to track inventory.
• 💻 Perpetual Inventory System is used by larger companies that have the resources for computer systems or software to continuously record inventory transactions.
• 📝 The main difference between the two systems is the method of recording inventory: manual in the case of the Periodic system, and automated with computers for the Perpetual system.
• 🛒 The treatment of cost of sales differs, with the Perpetual system recording it at the point of sale, while the Periodic system calculates it at year-end using a specific formula.
• 🔢 The formula for calculating cost of sales in a Periodic system is: Opening Stock + Purchases - Returns - Closing Stock.
• 🛍️ The video provides an example of a small business owner, Zakum, who uses a Periodic Inventory System, likely due to the lack of computers and the nature of being a small operation.
• 🧮 The script includes a detailed example of calculating total purchases for a business, including various transactions and adjustments.
• 📊 The video also covers how to draft a trading account in the ledger, which is part of the accounting process for recording financial transactions.
• 📘 Additional resources such as extra classes and study guides for accounting are mentioned, highlighting the importance of preparation for exams.
• 📝 The trading account format is consistent and includes sales, cost of sales, and gross profit, serving as an income statement for the business.

Q & A

What is the main topic of the video?

The main topic of the video is the inventory system, specifically discussing the two types of inventory systems used in accounting: periodic and perpetual.

What is an inventory system in accounting?

An inventory system in accounting is a method used to record and track the stock or inventory of a business.

What are the two types of inventory systems mentioned in the video?

The two types of inventory systems mentioned are the periodic inventory system and the perpetual inventory system.

Which type of business typically uses a periodic inventory system?

Small businesses typically use a periodic inventory system, such as a small shop or store.

What is the main difference between the periodic and perpetual inventory systems?

The main difference is that the perpetual inventory system uses computers or software to continuously record inventory transactions, while the periodic inventory system relies on manual recording, often at the end of the year.

How is the cost of sales recorded in a perpetual inventory system?

In a perpetual inventory system, the cost of sales is recorded at the point of sale, using computer software to track the transaction.

How is the cost of sales calculated in a periodic inventory system?

In a periodic inventory system, the cost of sales is calculated using a formula that involves opening stock, purchases, and returns, and it is typically done at the year-end after a physical stock count.

Why might a small business owner choose to use a periodic inventory system instead of a perpetual one?

A small business owner might choose a periodic inventory system because they do not have computers or software, or because the cost of purchasing and maintaining such technology is not financially viable for their small scale of operation.

What is the purpose of a trading account in accounting?

A trading account in accounting is used to summarize the revenue, cost of sales, and gross profit of a business over a specific period, typically a financial year.

What additional service is being offered for accounting students in the video?

The video mentions an extra class service for accounting students, available at a cost of 100 per month, which includes twice-weekly sessions to cover various question papers in preparation for exams.

What is the significance of the study guide mentioned in the video for grade 11 accounting students?

The study guide for grade 11 accounting students is a resource that has been completed after thorough editing and rechecking to help students practice and prepare for their tests, and it is available as a soft copy in PDF format.