INVENTORY and COST of GOODS SOLD

Types of Inventory MERCHANDISING MANUFACTURING Wholesalers Buy from manufacturers sell to retailer Retailers Buy from wholesalers Sell to general public MANUFACTURING Buy from several suppliers to make a product Sell to wholesalers and sometimes retailers

Cost of Goods Sold (COGS) Cost of Goods Sold is an accounting term to describe the direct expenses related to producing a good or service. COGS measures the “direct cost” incurred in the production of any goods or services. COGS is often the second line item appearing on the income statement, coming right after sales revenue. COGS is deducted from revenue to find gross profit.

Gross Profit Sales -Sales Return and Allowances =Net Sales -Cost of Goods Sold =Gross Profit

Return Inwards Return inwards refer to the goods returned to an organization by its customers. They are goods which were sold, but usually, because of being unsatisfactory, were returned back by our customers. Return Inwards are also called the Sales returns. Sales return reduce total sales of a company

Cost of Goods Sold Beginning Inventory + Purchases + Carriage Inwards - Return Outwards - Ending Inventory = Cost of Goods Sold

The Beginning Inventory Beginning inventory is the recorded cost of inventory in a company's accounting records at the start of an accounting period. for the year is the inventory left over from the previous year, that is, the merchandise that was not sold in the previous year.

Purchases A temporary account used in the periodic inventory system to record the purchases of merchandise for resale.  Any additional productions or purchases made by a retail company are added to the beginning inventory.

Carriage Inwards Refers to the transportation costs associated with the purchase of merchandise or other assets. The buyer is responsible for the cost of carriage inwards

Return outwards Faulty or wrong goods that the business returns back to suppliers Return Outwards are goods which were purchased from suppliers, however, because of being unsatisfactory or a different reason were returned back to the suppliers (faulty, broken, unsatisfactory product)

Ending Inventory (Closing Inventory) At the end of the year, the products that were not sold are subtracted from the sum of beginning inventory and additional purchases.

Carriage Outwards Carriage outwards refers to the seller's cost of delivering goods to the buyer. Carriage outwards is the expense of the seller

Question 1 From the following data, prepare and income statement for the year ended 31 November 2017 Return Inwards 60,000 Return Outwards 500,000 Equipment 30,000 Carriage Outwards 1,000,000 Sales Revenue 5,000,000 Carriage Inwards 250,000 Closing Inventory 35,000 Cash 57,000 Opening Inventory 100,000 Fuel Expense 25,000 Purchases 2,000,000 Salary Expense 200,000 Utility Expense Service Revenue

Question 2 From the following data, prepare and income statement for the year ended 31 December 2017 Return Inwards 100,000 Return Outwards 10,000 Motor Van 20,000 Carriage Outwards 50,000 Sales Revenue 12,000,000 Carriage Inwards Closing Inventory 3,000 Cash 45,000 Opening Inventory 5,000 Lighting and Heating 40,000 Purchases 300,000 Salary Expense 120,000 Utility Expense Rent Expense