INVENTORY CONTROL SYSTEMS
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- Marjorie Phebe Robinson
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1 INVENTORY CONTROL SYSTEMS SPECIFIC OUTCOMES ٱ ٱ ٱ ٱ Prepare the following ledger accounts in general ledger: Trading stock account Creditors allowances Purchases account Carriage on purchases Trading account Calculate the cost of sales from given information. Calculate the gross profit from given information. Differentiate between the periodic inventory system and the continuous inventory system by preparing certain ledger accounts. 1. WHAT TO REMEMBER ٱ There is no continuous recording of the trading stock movements. ٱ It is not possible to continuously ascertain from the bookkeeping itself - e.g. from the Trading stock account- what the trading stock on hand should be. 2. FEATURES OF THE PERIODIC INVENTORY SYSTEM ٱ ٱ ٱ ٱ Purchases of merchandise / trading stock is recorded to purchases account, a nominal account and not to trading stock account. Carriage on merchandise / trading stock is recorded to carriage on purchases account, a nominal account and not to trading stock account. Returns and allowances on purchased merchandise / trading stock is recorded on the credit side of credit allowances account and not to trading stock account. The credit allowances account is then closed off to the purchases account to calculate the net purchases. Drawings of merchandise / trading stock at cost for personal use by the owner is credited to purchases account and not to a trading stock account. D/01
2 ڤ ڤ Donation of merchandise / trading stock at cost is credited to purchases account and not to trading stock account. In order to determine the cost of sales a calculation has to be made: Initial / Opening stock Add: Net purchases (purchases - creditors allowances) Add: Carriage on purchases Cost of goods available to be sold Less: Final / Closing stock Cost of sales Sales (net) Cost of sales Gross profit XXX XXX XXX XXX (XXX) XXX XXX (XXX) XXX SUMMARISED COMPARISON OF THE CONTINUOUS AND PERIODIC INVENTORY SYSTEMS. The following is a comparison of the entries in the general ledger of the two systems. Transaction Credit purchases of merchandise Cash purchases of merchandise Merchandise returned to suppliers (purchases returns) Continuous inventory system Debit Trading stock Credit Creditors control Debit Trading stock Credit Bank Debit Creditors control Credit Trading stock Periodic inventory system Debit Purchases Credit Creditors control Debit Purchases Credit Bank Debit Creditors control Credit Creditors allowances Carriage on purchases Debit Trading stock Debit Carriage on purchases Credit Bank (or creditors control If on credit) Credit Bank (or creditors control If on credit) Donation of merchandise Debit Donations Debit Donations Withdrawal of merchandise at cost Credit Trading stock Debit Drawings Credit Trading stock Credit Purchases Debit Drawings Credit Purchases D/02
3 Credit sales of merchandise Debit Debtors control Debit Debtors control Credit Sales Credit Sales Debit Cost of sales -- Credit Trading stock -- Merchandise returned by customers (sales returns) Debit Debtors allowances Credit Debtors control Debit Debtors allowances Credit Debtors control Debit Trading stock -- Credit Cost of sales -- ACTIVITY 1 LEDGER ACCOUNTS: Trading stock R Initial stock / Opening stock? Final stock / Closing stock Purchases account Carriage on purchases Sales Creditors allowances Required: The following ledger accounts of GG stores as on 31 December, the last day of the accounting year: Trading stock; Creditors allowances; Purchases account; Carriage on purchases and the Trading account. ACTIVITY 1 ANSWER SHEET GENERAL LEDGER OF GG STORES Balance sheet accounts section Dr Trading stock B9 Cr Jan. 1 Balance b/d Dec 31 Closing stock GJ Dec. 31 Opening stock GJ D/03
4 Nominal accounts section Dr Creditors allowances N15 Cr Dec. 31 Purchases account b/d Dec. 31 Balance/Total b/d Dr Purchases account N16 Cr Dec. 31 Balance/Total b/d Dec. 31 Creditors allowance GJ Trading account GJ Dr Carriage on purchases N17 Cr Dec. 31 Balance/Total b/d Dec. 31 Trading Account GJ Dr Opening stock N18 Cr Dec. 31 Trading stock GJ Dec. 31 Trading Account GJ Dr Closing stock N19 Cr Dec. 31 Trading account GJ Final accounts section Dec. 31 Trading stock GJ Dr Trading account F1 Cr Dec. 31 Opening stock GJ Dec. 31 Sales (net) GJ Purchases (net) GJ Closing stock GJ Carriage on purchases Profit & loss account (Gross profit) GJ GJ D/04
5 There is no cost of sales in trading account, therefore the cost of sales has to be calculated. R Initial stock/opening stock Add: Purchases (net) Add: Carriage on purchases Cost price of goods available to be sold Less: Final stock/closing stock ( ) Cost of sales R Sales (net) Cost of sales ( ) Gross profit ACTIVITY 2 Calculate the cost of sales for each of the following years Has been done for you. YEAR 20.1 Initial stock / Opening stock Purchases (net) Carriage on purchases NIL Final stock / Closing stock (30 000) (35 000) (20 000) Cost of sales D/05
6 ACTIVITY 3 Complete the following table. Each case is independent from the previous one. Case 1 has been done for you. CASE Initial stock / Opening stock Purchases (net) Carriage on purchases Cost of goods available to be sold Final stock / Closing stock (50 000) ( ) (81 000) Cost of sales Gross profit Sales (net) ACTIVITY 4 You are required to draw up the following general ledger accounts of ALCAPONE CAFÉ for the year ended 31 December ٱ ٱ Purchases account Trading account Information: 2. Extract from the pre-adjustment trial balance on 31 December Trading stock 1 January R Purchases Carriage on purchases Debtors allowances Creditors allowances Sales Carriage on sales D/06
7 3. Adjustments and additional information: 2.1 Trading stock on hand, 31 December R Donated R200 worth of goods to local charity. 2.3 The owner took R1 800 worth of stock for his own use. 2.4 A debtor, B. Bush, returned goods. Selling price R An amount of R100 was incorrectly recorded as a stock purchases instead of a packing material purchases. 2.6 The following invoice received from Malone and Co has not yet been recorded. R Merchandise Less: Trade discount ( 600) Plus: Delivery charges 200 Amount due ACTIVITY 4 ANSWER SHEET GENERAL LEDGER OF ALCOPONE CAFÉ Nominal accounts section Dr Purchases account N1 Cr Dec. 31 Balance b/d Dec. 31 Donations GJ Creditors control GJ Drawings GJ Packing material Creditors allowances Trading account GJ GJ GJ D/07
8 Final accounts section Dr Trading account F1 Cr Dec. 31 Opening stock GJ Dec. 31 Sales (net) GJ Purchases (net) GJ Closing stock GJ Carriage on purchases Profit & loss account (Gross profit) GJ GJ No cost of sales in Trading account, therefore the cost of sales has to be calculated. R Initial / Opening stock Add: Purchases (net) Add: Carriage on purchases Cost of goods available to be sold Less: Final / Closing stock ( ) Cost of sales Sales (net) Cost of sales Gross Profit ( ) D/08
9 ACTIVITY 5 INSTRUCTIONS Analyse the following entries as indicated in the example: Example: Purchased merchandise on credit from a wholesaler. GENERAL LEDGER PERPETUAL INVENTORY SYSTEM PERIODIC INVENTORY SYSTEM ACCOUNT TO BE DEBITED ACCOUNT TO BE CREDITED ACCOUNT TO BE DEBITED ACCOUNT TO BE CREDITED Trading stock Creditors control Purchases Creditors control 4. Purchased merchandise and paid by cheque. 5. The owner took merchandise at cost price for personal use. 6. Sold goods by credit card to a customer. 7. Pay carriage on purchases by cheque. 8. Prepare a closing transfer for opening stock. 9. Prepare a closing transfer for closing stock. 10. Sold goods on account to a customer. 11. Prepare a journal entry for stock shortage on the last day of the financial year. D/09
10 ACTIVITY 5 ANSWER SHEET PERPETUAL INVENTORY SYSTEM PERIODIC INVENTORY SYSTEM ACCOUNT TO BE DEBITED ACCOUNT TO BE CREDITED ACCOUNT TO BE DEBITED ACCOUNT TO BE CREDITED Trading stock Creditors control Purchases Creditors control D/10
11 ACTIVITY 6 The following information relates to Tendem Traders. 1. Transactions for June June 2 Purchased merchandise from Cronje Ltd and paid by cheque, R Purchased merchandise on credit from Swanepoel Wholesalers for R The invoice includes delivery charges of R1 000 and a trade discount of R Sold goods on credit to G. Els for R90 000, which includes a 25 % mark-up on cost price. 14 Returned merchandise to Swanepoel Wholesalers, cost price R Sold goods, costing R at cost price plus 25 % for cash. 28 Received merchandise back from G. Els, sold to him at R Additional information: Required: Stock on hand: 1 June R June R The ledger accounts to record the above transactions in the general ledger (including the trading account but excluding the bank, debtors and creditors control accounts), properly balanced/closed off for June, if the periodic inventory system is in use. The ledger accounts to record the above transactions in the general ledger (including the trading account but excluding the bank, debtors and creditors control accounts), properly balanced/closed off for June, if the perpetual inventory system is in use. D/11
12 ACTIVITY 6 ANSWER SHEET PERIODIC INVENTORY SYSTEM GENERAL LEDGER OF TANDEM TRADERS Balance sheet accounts section Dr Trading stock B9 Cr Nominal accounts section Dr Purchases account N15 Cr Dr Carriage on purchases N16 Cr Dr Opening stock N17 Cr Dr Closing stock N18 Cr Dr Sales N19 Cr Dr Debtors allowances N20 Cr D/12
13 Final accounts section Dr Trading account F1 Cr - - Calculation of cost of sales Opening stock Purchases (net) Carriage on purchases Cost price of goods available to be sold Closing stock Cost of sales Sales (net) Cost of sales Gross Profit R D/13
14 PERPETUAL INVENTORY SYSTEM GENERAL LEDGER OF TANDEM TRADERS Balance sheet accounts section Dr Trading stock B9 Cr Nominal accounts section Dr Sales N1 Cr Dr Cost of sales N2 Cr Dr Debtors allowances N3 Cr Dr Trading stock surplus N4 Cr Final accounts section Dr Trading account F1 Cr D/14
15 INVENTORY CONTROL SYSTEMS ACTIVITY 1 SOLUTION GENERAL LEDGER OF GG STORES Balance sheet accounts section Dr Trading stock B9 Cr Jan. 1 Balance b/d Dec 31 Closing stock GJ Nominal accounts section Dec. 31 Opening stock GJ Dr Creditors allowances N15 Cr Dec. 31 Purchases account GJ Dec. 31 Balance/Total b/d Dr Purchases account N16 Cr Dec. 31 Balance/Total b/d Dec. 31 Creditors allowances GJ Trading account GJ Dr Carriage on purchases N17 Cr Dec. 31 Balance/Total b/d Dec. 31 Trading account GJ Dr Opening stock N18 Cr Dec. 31 Trading stock GJ Dec. 31 Trading Account GJ D/15
16 Dr Closing stock N19 Cr Dec. 31 Trading account GJ Final accounts section Dec. 31 Trading stock GJ Dr Trading account F1 Cr Dec. 31 Opening stock GJ Dec. 31 Sales (net) GJ Purchases (net) GJ Closing stock GJ Carriage on purchases GJ Profit & loss account (Gross profit) GJ R Initial stock/opening stock Add: Purchases (net) Add: Carriage on purchases Cost price of goods available to be sold Less: Final stock/closing stock ( ) Cost of sales Sales (net) Cost of sales ( ) Gross profit ACTIVITY 2 SOLUTION YEAR 20.1 Opening stock Purchases (net) Carriage on purchases NIL Closing stock (30 000) (35 000) (20 000) Cost of sales D/16
17 ACTIVITY 3 SOLUTION CASE Initial stock / Opening stock Purchases (net) Carriage on purchases Cost of goods available to be sold Final stock / Closing stock (50 000) ( ) (81 000) (80 400) Cost of sales Gross profit Sales (net) D/17
18 ACTIVITY 4 SOLUTION GENERAL LEDGER OF ALCOPONE CAFÉ Nominal accounts section Dr Purchases account N1 Cr Dec. 31 Balance b/d Dec. 31 Donations GJ Creditors control GJ Drawings GJ Packing material GJ Creditors allowances GJ Trading account GJ Dr Trading account F1 Cr Dec. 31 Opening stock GJ Dec. 31 Sales (net) GJ Purchases (net) GJ Closing stock GJ Carriage on purchases GJ Profit & loss account (Gross profit) GJ R Initial / Opening stock Add: Purchases (net) Add: Carriage on purchases Cost of goods available to be sold Less: Final / Closing stock (32 300) Cost of sales Sales (net) Cost of sales (59 800) Gross profit D/18
19 ACTIVITY 5 SOLUTION GENERAL LEDGER PERPETUAL INVENTORY SYSTEM PERIODIC INVENTORY SYSTEM ACCOUNT TO BE DEBITED ACCOUNT TO BE CREDITED ACCOUNT TO BE DEBITED ACCOUNT TO BE CREDITED Trading stock Creditors control Purchases Creditors control 1 Trading stock Bank Purchases Bank 2 Drawings Trading stock Drawings Purchases 3 Bank Sales Bank Sales Cost of sales Trading stock 4 Trading stock Bank Carriage on purchases Bank 5 Trading account Opening stock 6 Closing stock Trading account 7 Debtors control Sales Debtors control Sales Cost of sales 8 Trading stock deficit Trading stock Trading stock D/19
20 ACTIVITY 6 SOLUTION PERIODIC INVENTORY SYSTEM GENERAL LEDGER OF TANDEM TRADERS Balance sheet accounts section Dr Trading stock B9 Cr June 1 Balance b/d June 1 Opening stock GJ Closing stock GJ Nominal accounts section Dr Purchases account N15 Cr June 2 Bank CPJ June 14 Creditors control CAJ Creditors control CJ Trading account GJ Dr Carriage on purchases N16 Cr June 7 Creditors control CJ June 30 Trading account GJ Dr Opening stock N17 Cr June 1 Trading stock GJ June 30 Trading account GJ Dr Closing stock N18 Cr June 30 Trading account GJ June 30 Trading stock GJ Dr Sales N19 Cr June 30 Debtors allowances GJ June 10 Debtors control GJ Trading account GJ Bank CRJ D/20
21 Dr Debtors allowances N20 Cr June 28 Debtors control DAJ June 30 Sales GJ Final accounts section Dr Trading account F1 Cr June 30 Opening stock GJ June 30 Sales GJ Purchases GJ Closing stock GJ Carriage on purchases GJ Profit and loss GJ Calculation of cost of sales R Opening stock Purchases (net) Carriage on purchases Cost price of goods available to be sold Closing stock ( ) Cost of sales Sales (net) Cost of sales ( ) Gross Profit D/21
22 PERPETUAL INVENTORY SYSTEM GENERAL LEDGER OF TANDEM TRADERS Balance sheet accounts section Dr Trading stock B9 Cr June 1 Balance b/d June 10 Cost of sales DJ Bank CPJ Creditors control CAJ Creditors control CJ Cost of sales CRJ Cost of sales DAJ Balance c/d Trading stock surplus GJ July 1 Balance b/d Nominal accounts section Dr Sales N1 Cr June 30 Debtors allowances GJ June 10 Debtors control DJ Trading account GJ Bank CRJ Dr Cost of sales N2 Cr June 10 Trading stock GJ June 28 Trading stock DAJ Trading stock CRJ Trading account GJ Dr Debtors allowances N3 Cr June 28 Debtors control DAJ June 30 Sales GJ Dr Trading stock surplus N4 Cr June 30 Profit and loss GJ June 30 Trading stock GJ D/22
23 Final accounts section Dr Trading account F1 Cr June 30 Cost of sales GJ Profit and loss GJ June 30 Sales GJ D/23
24
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