Moore Accounting Notes

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Bennett Norman
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1 Moore Accounting Notes These notes were prepared specifically for my accounting students as a part of my teaching and preparation for the CXC CAPE [A level] Examinations in Accounting. RM ACCOUNTS ED

2 STOCK VALUATION

3 THE CLOSING VALUE OF STOCK In an accounting period, a business will purchase goods from more than one source at different prices. These goods are the sold to various customers at higher prices. The amount left on hand is the closing stock; but what is the value of it?

4 The closing stock Suppose the business had Bought on Dec 2 nd Bought on Dec 18 th Sold on Dec 23 rd What is the value of the closing stock? Is it $ $90.00 $ or $99.00

5 Stock records Allow management To continuously track the movement of stock To readily calculate the stock turnover To identify occurrence of theft, loss or damage To easily calculate the cost of sales per item

6 Product XDX123 date receipts issues Bal-Qty Bal-$ 1 Dec Dec 90@ Dec Dec Dec Dec 5.00

7 Calculating the closing stock First In First Out (FIFO) Last In First Out (LIFO) Average Cost (AVCO)

8 First In First Out Concept of moving out (issued) first the goods that were brought in (received) first It tends to value of the closing stock at the most recent purchase price(s) It is highly recommended by International Accounting Standards.

9 Closing Stock [FIFO] date receipts issues Bal-Qty Bal-$ 1 Dec Dec 90@ Dec Dec Dec Dec Add the purchases and deduct the sales from the previous balance

10 The FIFO process Note stock balance b/f $3.00 = $ Add the purchases to the current stock, such that = 140 or $150 + $288 = $ Deduct the first 100 units [50 from the balance and 50 from the purchases] = 40 This 40 is really $3.20 = $ Continue in this manner to the end

11 The short cut to FIFO Opening stock units 50 Add units purchased 270 Total units available 320 Less units sold 300 Closing Stock 20 Multiple the closing stock by the most recent price (s). 20 * $3.20 = $64.00

12 Last In First Out Concept of moving out (issued) first the goods that were brought in (received) last It tends to value of the closing stock at the prices of the earlier purchases. It is not really recommended by International Accounting Standards.

13 Closing Stock [LIFO] date receipts issues Bal-Qty Bal-$ 1 Dec Dec 90@ Dec Dec Dec Dec

14 The LIFO process Note stock balance b/f $3.00 = $ Add the purchases to the current stock, such that = 140 or $150 + $288 = $ Deduct the last 100 units [50 from the purchases and 40 from the balance b/f] = 40 This 40 is really $3.00 = $ Continue in this manner to the end

15 The short cut to LIFO Opening stock units 50 Add units purchased 270 Total units available 320 Less units sold 300 Closing Stock 20 Multiple the closing stock by the oldest price (s). 20 * $3.00 = $60.00

16 Average Cost Does not focus on when the goods were received or issued, but on the cost. It tends to give a more realistic value of the closing stock by using the average of the purchase prices It is also recommended by International Accounting Standards.

17 Closing Stock [AVCO] date receipts issues Bal-Qty Bal-$ 1 Dec Dec 90@ Dec Dec Dec Dec

18 The AVCO process Note stock balance b/f $3.00 = $ Add the purchases to the current stock, such that = 140 however find the average of the prices [that is ($3 + $3.20)/2 = $3.10 ] Multiply the stock balance by the average price, such that 140 * $3.10 = $ Deduct the 100 units, so that the balance would be 40 * $3.10 = $ Continue in this manner to the end

19 The short cut to AVCO Opening stock units 50 Add units purchased 270 Total units available 320 Less units sold 300 Closing Stock 20 Average of purchase prices. [ ] => * 20 = $63.00

20 Try this using each method Product DLJ412 date receipts issues Bal-Qty Bal-$ 1 Dec Dec 30@ Dec Dec 300@ Dec Dec 7.00

21 Other Data Purchases = the sum of the receipts column (quantity * cost price) Sales = the sum of the issues column (quantity * sell price) Cost of Sales = the sum of the issues column at their cost prices ( quantity sold * cost price)

22 A simple trading account Sales [issues * selling price] Opening Stock [bal b/f] X Add Purchases [receipts] X Goods available Less Closing Stock [end figure] X Less Cost Of Sales GROSS PROFITS X X X

1. Average cost: Average unit cost $53,300 1,550=$ Ending inventory (730 units x $34.39) $25,105 Cost of goods sold ($53,300 $25,105) $28,195

1. Average cost: Average unit cost $53,300 1,550=$ Ending inventory (730 units x $34.39) $25,105 Cost of goods sold ($53,300 $25,105) $28,195 AP7 1. a) Goods available for sale for all methods: Total s Cost Cost January 1, 2011 Beginning inventory 390 $32 $12,480 February 20, 2011 Purchase 700 34 23,800 June 30, 2011 Purchase 460 37 17,020 Goods