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20100726090715 chapter 3 the asset of stock

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  • 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information)
  • 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information)
  • Transcript

    • 1. Chapter 3 THE ASSET OF STOCK
    • 2.
      • Explain the meaning of terms purchase and sales as used in accounting.
      • Explain the differences in recording purchases on credit as compared to recording purchases that are paid for immediately in cash.
      • Explain the differences in recording sales on credit as compared to recording sales that are paid for immediately in cash.
      Study Objectives
    • 3.
      • Purchases in accounting means the purchase of goods which the business buys with the prime intention of selling.
      • Sales means the sale of those goods in which the business normally deals and which were bought with the prime intention of resale.
      Special meaning of sales and purchases
    • 4. Stock Movement
      • Good or services are sold above cost price
      • Goods or services are sold for less than their cost.
      Profit LO 1 Explain what an account is and how it helps in the recording process. Loss
    • 5. Stock Movement
      • The purchase of additional goods.
      • The return in to the business of goods previously sold
      • Therefore we have to open 2 account:
      • Purchase Account
      • A Return Inwards Account
      Increase in stock LO 1 Explain what an account is and how it helps in the recording process.
    • 6. Stock Movement
      • The sale of goods.
      • Good previously bought by the business now being returned to supplier.
      • Therefore we have to open 2 account:
      • A Sales Account
      • A Return Outwards Account
      Decrease in stock LO 1 Explain what an account is and how it helps in the recording process.
    • 7. Purchase of stock on credit
      • On 1 August 20X8, goods costing RM165 are bought on credit from D Henry.
      • Therefore:
      • The asset of stock is increased.
      • There is an increase in a liability.
      LO 2 Define debits and credits and explain their use in recording business transactions.
    • 8. Purchases of stock on credit $10,000 Aug 1 Purchases 165 Balance Transaction #1 LO 2 Define debits and credits and explain their use in recording business transactions. Aug 1 Henry 165
    • 9. Purchases of stock for cash
      • On 2 August 20X8, goods costing RM310 are bought, cash being paid for them immediately at the time of purchases.
      • Therefore:
      • The movement of stock is that of a purchase.
      • The asset of cash is decreased.
      LO 2 Define debits and credits and explain their use in recording business transactions.
    • 10. Purchases of stock for cash $10,000 Aug 2 Purchases 310 Balance Transaction #1 LO 2 Define debits and credits and explain their use in recording business transactions. Aug 1 Cash 310
    • 11. Sales of stock on credit
      • On 3 August 20X8, goods were sold on credit for RM375 to J Lee.
      • Therefore:
      • An asset is increased.
      • The asset of stock is decreased.
      LO 2 Define debits and credits and explain their use in recording business transactions.
    • 12. Sales of stock on credit $10,000 Aug 3 J Lee 375 Balance Transaction #1 LO 2 Define debits and credits and explain their use in recording business transactions. Aug 3 Sales 375
    • 13. Sales of stock for cash
      • On 4 August 20X8, goods are sold for RM55, cash being received immediately at the time of sale
      • Therefore:
      • The asset of cash is increased.
      • The asset of stock is reduced
      LO 2 Define debits and credits and explain their use in recording business transactions.
    • 14. Sales of stock for cash $10,000 Aug 4 Cash 55 Balance Transaction #1 LO 2 Define debits and credits and explain their use in recording business transactions. Aug 4 Sales 55
    • 15. Return Inwards (Sales Return)
      • On 5 August 20X8, goods which had been previously sold to F Lowe for RM29 are now returned to the business. This could be for various reason such as:
      • We sent goods of the wrong size, wrong colour or the wrong model.
      • The goods may have been damaged in transit.
      • The goods of poor quality.
      LO 2 Define debits and credits and explain their use in recording business transactions.
    • 16. Return Inwards (Sales Return)
      • Therefore:
      • The asset of stock is increased by the goods returned.
      • 2. There is a decrease in an asset.
      LO 2 Define debits and credits and explain their use in recording business transactions.
    • 17. Return Inwards (Sales Return) $10,000 Aug 5 R Inward 29 Balance Transaction #1 LO 2 Define debits and credits and explain their use in recording business transactions. Aug 5 F Lowe 29
    • 18. Returns Outwards (Purchase Return)
      • On 6 August 20X8, goods previously bought for RM96 are returned by the business to K Howe.
      • The liability of the business to K Howe is decreased by the value of the goods returned.
      • The asset of stock is decreased by the goods sent out.
      LO 2 Define debits and credits and explain their use in recording business transactions.
    • 19. Return Outwards (Purchase Return) $10,000 Aug 6 K Howe 96 Balance Transaction #1 LO 2 Define debits and credits and explain their use in recording business transactions. Aug 6 R Outwards 96
    • 20. End – Chapter 3