Accounting Grade 11-12: Inventory Systems

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

How is the cost of sales determined in a perpetual stock system?

Monthly based on average cost calculations

Only at the end of the financial year

Continuously with every sale and return (correct)

Only during physical stock takes

What is credited when goods are returned in a periodic stock system?

Purchases account (correct)

Cost of sales account

Trading stock account

Inventory account

Which method is not used for determining stock value according to the content?

First-in-first-out method

Weighted average method

Specific identification method

Market value method (correct)

What happens to the Trading stock account when goods are bought?

It is debited Signup and view all the answers

When is the cost of sales calculated in a periodic stock system?

At the end of the financial year Signup and view all the answers

In which circumstances is the cost of sales not continuously determined?

In a periodic stock system Signup and view all the answers

What impact does a return of goods have on the Purchases account in a periodic system?

The Purchases account is credited Signup and view all the answers

Which of the following statements correctly describes the stock valuation at the end of the financial year?

The average price is determined by all purchases made Signup and view all the answers

What is the primary characteristic of a perpetual inventory system?

It records stock movement continuously. Signup and view all the answers

How are stock purchases treated in a perpetual inventory system?

Recorded directly in the Trading Stock account. Signup and view all the answers

What is a key difference between the perpetual and periodic inventory systems regarding returns on stock purchases?

Returns are credited in the Trading Stock account in the perpetual system. Signup and view all the answers

Which type of business is most likely to utilize a perpetual inventory system?

A supermarket selling large quantities of low-value goods. Signup and view all the answers

What happens to the Trading Stock account when stock is donated in a perpetual inventory system?

It is credited to reflect the donation. Signup and view all the answers

What is the balance of the Trading Stock account indicative of in a perpetual system?

The amount of stock that should be on hand. Signup and view all the answers

What occurs in a periodic inventory system to determine the amount of stock on hand?

Physical stocktaking conducted periodically. Signup and view all the answers

In a periodic inventory system, what account are purchases recorded in?

Expenses account. Signup and view all the answers

What is a notable characteristic of the Specific Identification method?

It assigns a unique cost price to each item sold. Signup and view all the answers

How does FIFO affect the gross profit in comparison to weighted average?

FIFO can show a higher gross profit than the weighted average method. Signup and view all the answers

What is a major drawback of the Specific Identification method?

It allows for the manipulation of cost prices. Signup and view all the answers

In the context of inventory accounting, what does FIFO stand for?

First In, First Out Signup and view all the answers

Which stock valuation method generally results in the lowest gross profit during periods of rising prices?

Weighted Average Signup and view all the answers

Which statement accurately describes the results of the FIFO method for the closing stock valuation?

It is based on the oldest inventory costs. Signup and view all the answers

What challenge might arise when using the Specific Identification method for stock management?

It could require extensive record-keeping and tracking. Signup and view all the answers

In what situation would using FIFO be more advantageous compared to Specific Identification?

In environments with stable pricing and homogeneous inventory. Signup and view all the answers

What is a key characteristic of the perpetual stock system?

Cost of sales is recorded every time a sale occurs. Signup and view all the answers

Which type of business is most likely to utilize the periodic stock system?

A grocery store. Signup and view all the answers

How does theft detection differ between the perpetual and periodic stock systems?

The perpetual system allows for quicker detection of theft. Signup and view all the answers

Which of the following is a disadvantage of the periodic stock system?

There is insufficient control over stock levels. Signup and view all the answers

Which factor affects the choice between perpetual and periodic stock systems?

Complexity in determining commodity pricing. Signup and view all the answers

What aspect of stock management is emphasized in the perpetual system?

Daily updates of trading stock availability. Signup and view all the answers

What is a notable feature of the periodic stock system?

Calculates cost of sales on a monthly basis. Signup and view all the answers

Which statement is true regarding the valuation of stock in businesses utilizing differing purchasing prices?

It is determined by taking the average of purchase prices. Signup and view all the answers

What is the main advantage of using the First-In-First-Out (FIFO) method in stock management?

It ensures the oldest stock is sold first, helping reduce spoilage. Signup and view all the answers

When using the weighted average method, how is the average price of stock affected by larger purchases?

It has a minor influence on the overall average price. Signup and view all the answers

In the calculation of closing stock using weighted average, what figure is used to represent the unit value?

The average price calculated from all purchased units. Signup and view all the answers

Which scenario is most conducive to the usage of the FIFO method?

Managing items that perish quickly. Signup and view all the answers

During which scenario will the weighted average price per item be undervalued?

When only a few high-priced items are added to existing low-cost stock. Signup and view all the answers

What does the Prudence concept in stock valuation imply?

Stock valuation should reflect the most current market prices. Signup and view all the answers

Which calculation embodies the weighted average price despite having multiple purchases?

($20 + $25,000) ÷ 502 = $49.84$ per item. Signup and view all the answers

If 200 cans were sold and the average price is $1.12$, how much stock will be valued at the end?

R224. Signup and view all the answers

Study Notes

Inventory Systems

Accounting Grade 11 and 12 cover inventory systems encompassing perpetual and periodic methods.
A key concept is "inventory," referring to goods held for sale in the ordinary course of business.
The image includes examples of trading stock accounts and calculations to illustrate these systems.
Differences exist in how and when cost of sales is calculated in perpetual versus periodic systems.
Perpetual inventory systems track stock continuously, updating records for every purchase and sale. Periodic methods only record stock at the end of the specified period (e.g., month, year) and use calculations to determine the cost of sales.

Perpetual Inventory System

The trading stock account is used when items are bought.
When goods are returned the trading stock is credited.
Cost of sales is calculated with every sale and every return of goods.

Periodic Inventory System

The purchases account is used when goods are purchased.
When goods are returned, the purchases account is credited.
Cost of sales is not calculated with every sale or return.
A calculation is needed to determine the cost of sales, usually done at the end of the month or financial year.
Stock takes are conducted periodically to determine the amount of stock on hand

Comparison of Perpetual and Periodic Systems

Perpetual: Stock purchases are recorded in the trading stock account (asset). Includes carriage on purchases, returns, and donations in the trading stock account.
Periodic: Stock purchases are recorded in the purchases account (expense). Includes carriage on purchases, returns, donations, in the purchases account. Drawings of stock are credited in the purchases account.

Stock Valuation Methods

Specific Identification: This method assigns a unique cost to each inventory item, often employed for high-value, unique goods.
First-In, First-Out (FIFO): Assumes the first items purchased are the first ones sold, matching the order of purchase to the order of sale,
Weighted Average: Calculates a weighted average cost per unit, factoring in all purchases and their costs during the period.

Cost of Sales Calculations

Periodic: Opening stock, plus net purchases, plus carriage on purchases and custom duties, minus closing stock equals the cost of sales.
Perpetual: Methods calculate cost of sales on a continuous basis.

Exam Tips

Memorize calculations for opening stock, net purchases, carriage, duties, and closing stock to determine cost of sales and gross profits.
Use the trading account to record and calculate inventory details.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz focuses on inventory systems for Grade 11 and 12 accounting, covering both perpetual and periodic methods. It provides insights into managing trading stock accounts, calculating costs of sales, and the key differences between these inventory systems. Test your understanding of how inventory is tracked and recorded in a business environment.