inventory systems

• Periodic inventory system


  The cost of sales figure must be calculated at the end of the financial period
• Determining the Cost of Sales

  Opening Stock + Net Purchases + Carriage Inwards (and any other incidental costs in getting the goods into a saleable condition e.g. Custom and Excise Duties) - Closing Stock = Cost of Sales
• Inventory account


  Used to record the opening balance of inventory, not the acquisition or sale of inventory in a periodic inventory system
• Purchases account


  Used to record the acquisition of inventory from suppliers in a periodic inventory system
• Purchases Returns account


  Used to record returns of goods previously purchased from suppliers in a periodic inventory system
• Carriage on Purchases account


  An expense account used in determining the Cost of Sales figure for the accounting period
• Cost of Sales account

  A temporary account that is only open on the last day of the financial period in a periodic inventory system
• Trading account


  A temporary account that is only open on the last day of the financial period, used to determine the Gross Profit or Loss
• Sales Returns account


  Used to record any returns made by customers during the financial period
• Sales account


  Used to record income from sales made in the financial period
• Profit and Loss account

  A temporary account that is only open on the last day of the financial period, used to determine the Net Profit or Loss
• Drawings account


  An account that adversely impacts the Capital account when the owner withdraws assets from the business for personal use
• Capital account


  Reflects the owner's equity in the business, impacted by Net Profit/Loss and Drawings
• Drawings Account


  An account that adversely impacts upon the capital account within the entity. The owner may make withdrawals (Drawings) either in cash or by taking one of the business' assets out of the business for personal use, e.g. 'inventory' as an example. At the end of the accounting period, the Drawings account will be closed off to the Capital account (by debiting the Capital account and crediting the Drawings account, thereby zeroizing the account).
• The balance b/d of the Capital account of R175 600 is made up of R170 600 (opening balance) + R5 000 additional Capital contribution.
• Capital Account


  Features in two places in the annual financial statements: Statement of Changes in Equity (SOCIE) and Statement of Financial Position (SOFP). The transactions or journal entries that give rise to movements in the Capital Account are: Initial Capital contribution, any additional Capital contributions, Net Profit (or Net Loss) and Drawings.
• After balancing the Capital account in the books of Xavier Dealers, an amount of R116 570 will be reflected in both the SOCIE and the SOFP.
• Perpetual Inventory System


  A business can decide to use this system to record and control their inventory (e.g. Smart Motors)
• Periodic Inventory System


  A business can decide to use this system to record and control their inventory (e.g. Xavier Dealers)
• The Accounting Cycle

  1. Analyze transactions to determine economic impact on accounting equation

  2. Record external transactions in journal

  3. Post to the ledger accounts

  4. Summarize information by preparing a pre-adjusted trial balance

  5. Adjust the accounts

  6. Prepare the post-adjustment trial balance

  7. Close the accounts

  8. Record closing entries in journal

  9. Transfer closing JE's to Ledger accounts

  10. 10. Prepare CSI - Comp. Statement of Income

  11. 11. Prepare SCIE - Statement of Changes in Equity

  12. 12. Prepare SOFP - Statement of Fin. Position
• Primary Financial Statements of a Business

  • Statement of Comprehensive Income
  • Statement of Changes in Equity
  • Statement of Financial Position