Financial accounting mgt101 power point slides lecture 15

Financial Accounting
1
Lecture – 15
Recap
• Purchases
• Stocks
• Cost of Goods Sold

2
Lecture – 15
• Should we record all the items that we acquire in the
purchases account?
• Only those goods that are acquired for the Purpose of
Resale should be recorded in the Purchases Account.

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Lecture – 15
• Opening Stock Means – is the cost of goods that were
unsold at the beginning of the accounting period.
• Closing Stock Means – is the cost of goods that were unsold
at the end of the accounting period.

4
Lecture – 15
Journal Entries (Trader)
• Purchase of Goods
Debit Stock / Material Account
Credit Cash / Bank / Creditors
• Consumption of Goods
Debit Cost of Good Sold
Credit Stock
• Payment in case of credit purchase
Debit Creditors
Credit Cash / Bank

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Lecture – 15
Types of Stock (Manufacturer)
• In case of manufacturer there are at least two types of
Stock:
 Raw Material Stock
 Finished Goods Stock
• The material that is in the process of completion is called
Work in Process.

6
Lecture – 15
Flow of Costs
Raw Material Stock Other Costs Accounts
Work in Process Account
Finished Goods Account
Cost of Goods Sold Account

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Lecture – 15
Journal Entries (Manufacturer)
• Purchase of Raw Material
Debit Stock / Material Account
Credit Cash / Bank / Creditors
• Other Direct Costs Incurred
Debit Relevant Cost / Expense Head
Credit Cash / Bank / Payables
• Raw Material Issued and Other Costs Allocated to
Production of Units.
Debit Work in Process
Credit Stock Material Account
Debit Work in Process
Credit Expense Head

8
Lecture – 15
• When production is completed
Debit Finished Goods Stock Account
Credit Work in Process Account
• When Goods are Sold
Debit Cost of Goods Sold Account
Credit Finished Goods Stock Account

9
Lecture – 15
Return of Purchased Material
• Option 1
Debit Goods Returned Account
Credit Raw Material Stock Account
Debit Cash / Bank
Credit Goods Returned Account
OR
Debit Raw Material Stock Account
Credit Goods Returned Account

10
Lecture – 15
Return of Purchased Material
• Option 2
Debit Cash / Creditor
Credit Stock Account

11
Lecture – 15
Example1
• Record the following transactions:
1. Purchased goods for cash Rs. 10,000
2. Purchased goods on credit from ABC Co. Rs. 25,000
3. Sold goods whose cost was Rs. 20,000
4. Returned goods to ABC Co. that originally cost Rs.
5,000
5. Paid to ABC Co. Rs. 15,000 through cheque
6. Sold goods whose cost was Rs. 5,000

12
Lecture – 15
Example1
• Answer following questions.
1. What is the cost of goods sold?
2. What is the value of closing stock?
3. What amount is payable to ABC Co.?

13
Lecture – 15
1 – Purchased goods for cash Rs. 10,000
Stock Account
Code --
Date No. Narration Dr. Rs. Cr. Rs. Bal. Dr/(Cr)
1 Purchased goods for cash 10,000 10,000
Cash Account
Code --
1 Purchased goods for cash 10,000 (10,000)

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Lecture – 15
2 – Purchased goods on credit from ABC Co. Rs. 25,000
Stock Account
Code --
2 Purchased goods from ABC 25,000 35,000
ABC Co.
Code --
2 Purchased goods from ABC 25,000 (25,000)

15
Lecture – 15
3 – Sold goods whose cost was Rs. 20,000
Stock Account
Code --
3 Goods sold 20,000 15,000
Cost of Goods Sold
Code --
3 Goods sold 20,000 20,000

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Lecture – 15
4 – Returned goods to ABC Co. cost Rs. 5,000
Stock Account
Code --
3 Goods sold 20,000 15,000
4 Returned goods to ABC 5,000 10,000
ABC Co.
Code --
4 Returned goods to ABC 5,000 (20,000)

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Lecture – 15
5 – Paid to ABC Co. Rs. 15,000 through cheque
Bank Account
Code --
5 Paid to ABC 15,000
ABC Co.
Code --
5 Paid to ABC 15,000 (5,000)

18
Lecture – 15
6 – Sold goods whose cost was Rs. 5,000
Stock Account
Code --
3 Goods sold 20,000 15,000
6 Goods sold 5,000 5,000
Cost of Goods Sold
Code --
3 Goods sold 20,000 20,000
6 Goods sold 5,000 25,000

19
Lecture – 15
Q1 – What is the cost of goods sold?
Cost of Goods Sold
Code --
3 Goods sold 20,000 20,000
6 Goods sold 5,000 25,000

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Lecture – 15
Q2 – What is the value of closing stock?
Stock Account
Code --
3 Goods sold 20,000 15,000
6 Goods sold 5,000 5,000

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Lecture – 15
Q3 – What amount is payable to ABC Co.?
ABC Co.
Code --
5 Paid to ABC 15,000 (5,000)

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Lecture – 15
Example 2
• Using the following data calculate the Cost of Goods Sold of
XYZ Co.
 Stock levels Opening Rs. Closing Rs.
Raw material 100,000 85,000
Work in process 90,000 95,000
Finished goods 150,000 140,000
 Purchase of raw material during the period Rs. 200,000
 Paid to labour Rs. 180,000 out of which Rs. 150,000
used on production.
 Other production costs Rs. 50,000

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Lecture – 15
Example 2
Raw Material Account
O/S 100,000
Purch. 200,000 WIP 215,000
C/S 85,000
Total 300,000 Total 300,000
Labour Account
Cost 180,000 Charge 150,000
Total 180,000 Total 180,000
Other Costs Account
Paid 50,000 Charge 50,000
Total 50,000 Total 50,000
O/B 90,000
Raw M 215,000
Labour 150,000 F/G 410,000
O/H 50,000 C/B 95,000
Total 505,000 Total 505,000

24
Lecture – 15
Example 2
Finished Goods Stock Account
O/S 150,000 COS 420,000
WIP 410,000 C/S 140,000
Total 560,000 Total 460,000
F/G 420,000

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Lecture – 15
Example 2
Raw Material Stock Account
Debit Credit
Opening Balance 100,000
Purchases 200,000
Closing Balance 85,000
Work in
Process
215,000
Total 300,000Total 300,000
Debit Credit
Raw Material 215,000

26
Lecture – 15
Example 2
Labour Account
Debit Credit
Total Cost 180,000
Work in
Process
150,000
Debit Credit
Labour 150,000

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Lecture – 15
Example 2
Other Manufacturing Costs
Debit Credit
Total Cost 50,000
Work in
Process
50,000
Debit Credit
Labour 150,000
Closing Balance 95,000Other Costs 50,000
Total 50,000Total 50,000

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Lecture – 15
Example 2
Debit Credit
Labour 150,000
Other Costs 50,000 Closing Balance 95,000
Finished Goods 410,000
Total 505,000Total 505,000
Debit Credit
Work in
Process
215,000

29
Lecture – 15
Example 2
Debit Credit
Finished Goods 410,000
Debit Credit
Work in Process 410,000
Total 560,000Total 560,000
Cost of Goods Sold 410,000

Financial accounting mgt101 power point slides lecture 15

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Financial accounting mgt101 power point slides lecture 15