1. CDA COLLEGE ACC101: BOOK KEEPING II Lecture 11 Lecture 11 Lecturer: Kleanthis Zisimos

2. Lecture Topic List 1. How do you manage to get a precise count of stock in hand at a specific time 2. How do you value stock 3. How does double entry bookkeeping for stock work 4. Control accounts

3. Introduction Stock is one of the most important assets in a company’s Balance Sheet and it also affects the Profit & Loss account. Stock is one of the most important assets in a company’s Balance Sheet and it also affects the Profit & Loss account. We have seen so far the cost of sales formula in the Profit and loss but we have not analyze We have seen so far the cost of sales formula in the Profit and loss but we have not analyze 1. How do you manage to get a precise count of stock in hand at a specific time 2. How do you value stock 3. How does double entry bookkeeping for stock work

4. Double entry for stock The ledger entries for opening stock are The ledger entries for opening stock are Debit Trading account Debit Trading account Credit stock Credit stock The ledger entries for closing stock are The ledger entries for closing stock are Debit Stock Debit Stock Credit Trading account Credit Trading account Of course closing stock also goes to the balance sheet after we close the account

5. Valuing Stock Stocks should be valued at the lower of historical cost and net realizable value Stocks should be valued at the lower of historical cost and net realizable value Historical cost. The cost at which the products originally bought Historical cost. The cost at which the products originally bought Net realizable value. Expected selling price less any costs still to be incurred in getting the product ready for sale Net realizable value. Expected selling price less any costs still to be incurred in getting the product ready for sale

6. Methods of measuring stock 3 basic methods are used to measure stock 3 basic methods are used to measure stock FIFO (first in, first out). Goods are used in the order in which they are received from suppliers FIFO (first in, first out). Goods are used in the order in which they are received from suppliers LIFO ( Last in, first out). Resent delivery goods are used first. LIFO ( Last in, first out). Resent delivery goods are used first. Average stock. We use the average price of all the stock received at the moment of valuing the stock Average stock. We use the average price of all the stock received at the moment of valuing the stock Best practice suggests the use of FIFO and average stock Best practice suggests the use of FIFO and average stock

7. Statutory regulations. In published accounts the companies act 1985 requires that the stock categories should be grouped and disclosed under the following heading In published accounts the companies act 1985 requires that the stock categories should be grouped and disclosed under the following heading Raw materials Raw materials Work in progress Work in progress Finished goods Finished goods Payments on accounts. Goods paid but not yet received Payments on accounts. Goods paid but not yet received

8. Control accounts A control account is an account in the nominal ledger in which a record is kept of the total value of a number of similar but individual items. Control accounts are used mainly for debtors or creditors A control account is an account in the nominal ledger in which a record is kept of the total value of a number of similar but individual items. Control accounts are used mainly for debtors or creditors

9. Debtors & creditors Control a/cs A debtors control account is an account in which records are kept of transactions involving all debtors in total. The balance on the debtors control account at any time will be the total amount due to the business at that time from its debtors A debtors control account is an account in which records are kept of transactions involving all debtors in total. The balance on the debtors control account at any time will be the total amount due to the business at that time from its debtors A creditor control account is an account in which records are kept of transactions involving all creditors in total. The balance on the debtors control account at any time will be the total amount due to the business at that time from its creditors A creditor control account is an account in which records are kept of transactions involving all creditors in total. The balance on the debtors control account at any time will be the total amount due to the business at that time from its creditors

10. Purpose of control accounts They provide a check on the accuracy of entries made in the personal accounts in the sales ledger and purchases ledger They provide a check on the accuracy of entries made in the personal accounts in the sales ledger and purchases ledger They assist in the location of errors like the omission errors and transposition errors They assist in the location of errors like the omission errors and transposition errors They provide an internal check where there is a separation of bookkeeping duties They provide an internal check where there is a separation of bookkeeping duties

11. Control accounts today Now days the use of computerized systems has Now days the use of computerized systems has made feasible to use sales and purchase ledgers without the need for operating separate control accounts. made feasible to use sales and purchase ledgers without the need for operating separate control accounts. In such a system you can print from the sales or purchases ledger the list of individual balances as well as providing a total balance which represents the control account balance In such a system you can print from the sales or purchases ledger the list of individual balances as well as providing a total balance which represents the control account balance