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

3. Financial Accounting 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.

4. Financial Accounting 3 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.

5. Financial Accounting 4 Lecture – 15 Journal Entries (Trader) Purchase of Goods Debit Stock / Material Account CreditCash / Bank / Creditors Consumption of Goods Debit Cost of Good Sold CreditStock Payment in case of credit purchase Debit Creditors CreditCash / Bank

6. Financial Accounting 5 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.

7. Financial Accounting 6 Lecture – 15 Flow of Costs Raw Material StockOther Costs Accounts Work in Process Account Finished Goods Account Cost of Goods Sold Account

8. Financial Accounting 7 Lecture – 15 Journal Entries (Manufacturer) Purchase of Raw Material Debit Stock / Material Account CreditCash / Bank / Creditors Other Direct Costs Incurred Debit Relevant Cost / Expense Head CreditCash / Bank / Payables Raw Material Issued and Other Costs Allocated to Production of Units. Debit Work in Process CreditStock Material Account Debit Work in Process CreditExpense Head Raw Material Issued and Other Costs Allocated to Production of Units. Debit Work in Process CreditStock Material Account Debit Work in Process CreditExpense Head

9. Financial Accounting 8 Lecture – 15 When production is completed Debit Finished Goods Stock Account CreditWork in Process Account When Goods are Sold Debit Cost of Goods Sold Account CreditFinished Goods Stock Account

10. Financial Accounting 9 Lecture – 15 Return of Purchased Material Option 1 Debit Goods Returned Account CreditRaw Material Stock Account Debit Cash / Bank CreditGoods Returned Account OR Debit Raw Material Stock Account CreditGoods Returned Account

11. Financial Accounting 10 Lecture – 15 Return of Purchased Material Option 2 Debit Cash / Creditor CreditStock Account

12. Financial Accounting 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

13. Financial Accounting 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.?

14. Financial Accounting 13 Lecture – 15 1 – Purchased goods for cash Rs. 10,000 Stock AccountCode -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 1 Purchased goods for cash 10,000 Cash AccountCode -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 1 Purchased goods for cash 10,000(10,000)

15. Financial Accounting 14 Lecture – 15 2 – Purchased goods on credit from ABC Co. Rs. 25,000 Stock AccountCode -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 1 Purchased goods for cash 10,000 2 Purchased goods from ABC 25,00035,000 ABC Co.Code -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 2 Purchased goods from ABC 25,000(25,000)

16. Financial Accounting 15 Lecture – 15 3 – Sold goods whose cost was Rs. 20,000 Stock AccountCode -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 1 Purchased goods for cash 10,000 2 Purchased goods from ABC 25,00035,000 3 Goods sold 20,00015,000 Cost of Goods SoldCode -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 3 Goods sold 20,000

17. Financial Accounting 16 Lecture – 15 4 – Returned goods to ABC Co. cost Rs. 5,000 Stock AccountCode -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 1 Purchased goods for cash 10,000 2 Purchased goods from ABC 25,00035,000 3 Goods sold 20,00015,000 4 Returned goods to ABC 5,00010,000 ABC Co.Code -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 2 Purchased goods from ABC 25,000(25,000) 4 Returned goods to ABC 5,000(20,000)

18. Financial Accounting 17 Lecture – 15 5 – Paid to ABC Co. Rs. 15,000 through cheque Bank AccountCode -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 5 Paid to ABC 15,000 ABC Co.Code -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 2 Purchased goods from ABC 25,000(25,000) 4 Returned goods to ABC 5,000(20,000) 5 Paid to ABC 15,000(5,000)

19. Financial Accounting 18 Lecture – 15 6 – Sold goods whose cost was Rs. 5,000 Stock AccountCode -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 1 Purchased goods for cash 10,000 2 Purchased goods from ABC 25,00035,000 3 Goods sold 20,00015,000 4 Returned goods to ABC 5,00010,000 6 Goods sold 5,000 Cost of Goods SoldCode -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 3 Goods sold 20,000 6 Goods sold 5,00025,000

20. Financial Accounting 19 Lecture – 15 Q1 – What is the cost of goods sold? Cost of Goods SoldCode -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 3 Goods sold 20,000 6 Goods sold 5,00025,000

21. Financial Accounting 20 Lecture – 15 Q2 – What is the value of closing stock? Stock AccountCode -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 1 Purchased goods for cash 10,000 2 Purchased goods from ABC 25,00035,000 3 Goods sold 20,00015,000 4 Returned goods to ABC 5,00010,000 6 Goods sold 5,000

22. Financial Accounting 21 Lecture – 15 Q3 – What amount is payable to ABC Co.? ABC Co.Code -- DateNo.NarrationDr. Rs.Cr. Rs.Bal. Dr/(Cr) 2 Purchased goods from ABC 25,000(25,000) 4 Returned goods to ABC 5,000(20,000) 5 Paid to ABC 15,000(5,000)

23. Financial Accounting 22 Lecture – 15 Example 2 Using the following data calculate the Cost of Goods Sold of XYZ Co. Stock levelsOpening Rs.Closing Rs. Raw material100,00085,000 Work in process 90,00095,000 Finished goods150,000 140,000 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

24. Financial Accounting 23 Lecture – 15 Example 2 Raw Material Account O/S100,000 Purch.200,000WIP215,000 C/S85,000 Total300,000Total300,000 Labour Account Cost180,000Charge150,000 Total180,000Total180,000 Other Costs Account Paid50,000Charge50,000 Total50,000Total50,000 Work in Process Account O/B90,000 Raw M215,000 Labour150,000F/G410,000 O/H50,000C/B95,000 Total505,000Total505,000

25. Financial Accounting 24 Lecture – 15 Example 2 Finished Goods Stock Account O/S150,000COS420,000 WIP410,000C/S140,000 Total560,000Total460,000 Cost of Goods Sold Account F/G420,000

26. Financial Accounting 25 Lecture – 15 Example 2 Raw Material Stock Account DebitCredit Opening Balance100,000 Purchases200,000 Closing Balance85,000 Work in Process 215,000 Total300,000Total 300,000 Work in Process Account DebitCredit Opening Balance90,000 Closing Balance95,000 Raw Material 215,000

27. Financial Accounting 26 Lecture – 15 Example 2 Labour Account DebitCredit Total Cost180,000 Work in Process 150,000 Work in Process Account DebitCredit Opening Balance90,000 Raw Material215,000 Closing Balance95,000 Labour 150,000

28. Financial Accounting 27 Lecture – 15 Example 2 Other Manufacturing Costs DebitCredit Total Cost50,000 Work in Process 50,000 Work in Process Account DebitCredit Opening Balance90,000 Raw Material215,000 Labour150,000 Closing Balance95,000 Other Costs 50,000 Total50,000Total 50,000

29. Financial Accounting 28 Lecture – 15 Example 2 Work in Process Account DebitCredit Opening Balance90,000 Raw Material215,000 Labour150,000 Other Costs50,000Closing Balance95,000 Finished Goods 410,000 Total505,000Total 505,000 Finished Goods Stock Account DebitCredit Opening Balance150,000 Closing Balance140,000 Work in Process 215,000

30. Financial Accounting 29 Lecture – 15 Example 2 Cost of Goods Sold Account DebitCredit Finished Goods 410,000 Finished Goods Stock Account DebitCredit Opening Balance150,000 Work in Process410,000 Closing Balance140,000 Total560,000Total 560,000 Cost of Goods Sold 410,000