Accounting Grd 11 Introducing Inventory Systems S3

Summary

In 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.