Podcast
Questions and Answers
Which account is debited for the cost of the goods purchased under periodic inventory?
Which account is debited for the cost of the goods purchased under periodic inventory?
- Freight In
- Purchase Discount
- Purchases (correct)
- Purchase Returns & Allowances
What is the classification of the Purchase Returns & Allowances account?
What is the classification of the Purchase Returns & Allowances account?
- Expense
- Asset
- Contra Account (correct)
- Adjunct Account
What is the classification of the Freight In account?
What is the classification of the Freight In account?
- Expense
- Adjunct Account (correct)
- Asset
- Contra Account
When is the Purchase Discount account credited?
When is the Purchase Discount account credited?
What is the normal balance classification of the Sales Returns & Allowances account from the seller's perspective?
What is the normal balance classification of the Sales Returns & Allowances account from the seller's perspective?
What costs are included in the Cost of Conversion under IAS 2.10?
What costs are included in the Cost of Conversion under IAS 2.10?
When does the Purchase Discount account get credited?
When does the Purchase Discount account get credited?
What is the normal balance classification of the Purchase Returns & Allowances account from the buyer's perspective?
What is the normal balance classification of the Purchase Returns & Allowances account from the buyer's perspective?
What is debited for the cost of the goods/merchandise purchased under periodic inventory from the buyer's perspective?
What is debited for the cost of the goods/merchandise purchased under periodic inventory from the buyer's perspective?
What is the classification of the Freight In account?
What is the classification of the Freight In account?
Study Notes
Inventory Accounting
- Under periodic inventory, the Purchases account is debited for the cost of the goods purchased.
Purchase Returns & Allowances
- The Purchase Returns & Allowances account is a contra-purchases account, from the buyer's perspective.
- From the seller's perspective, the Sales Returns & Allowances account has a normal credit balance.
Freight In
- The Freight In account is an asset account, as it represents the cost of transporting goods into inventory.
Purchase Discounts
- The Purchase Discount account is credited when the buyer takes advantage of a discount offered by the seller.
- The Purchase Discount account is also credited when the buyer pays the seller less than the original invoice amount.
Cost of Conversion (IAS 2.10)
- The Cost of Conversion includes labor costs and manufacturing overheads related to the production process.
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Description
Test your knowledge of the cost of inventory as per IAS 2.10, including cost of purchase, cost of conversion, and other costs related to bringing inventories to their present location and condition. Explore the new accounts from the buyer's perspective and their classification.
