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Week 7
| Term | Definition |
|---|---|
| Service entities | Those that offer a service to a client to generate income e.g. tutor |
| Trading entities | Those that sell stock or inventory to customers to earn income e.g. manufacturers selling to wholesalers |
| Inventories | By AASB102 are assets |
| Cost of inventory includes | All costs of purchase Costs of conversion Other costs incurred in bringing inventory to their present location and condition |
| Cost of purchase of inventory includes | Purchas price Import duties and other taxes Transport, handling and other costs directly attributable to acquisition of finished goods, materials or services Trade discounts are deducted from cost of purchase |
| Cost of purchase assignation | Specific identification First in - first out Weighted average |
| Specific identification | Accurate yet not available to all businesses Typically used for smaller volume, high value items e.g. watches in luxury shop |
| First in - first out | Used for interchangeable inventory items Assumes that first units acquired are the first to be sold |
| Weighted average | Used for interchangeable inventory items For inventory during the period |
| Methods to record inventory movements | Periodic method Perpetual method |
| Periodic method | No continuous record of inventory transactions |
| Periodic method AKA | Expense approach |
| Perpetual method | Maintains a continuous record of inventory transactions |
| Perpetual method AKA | Asset approach |
| Selling price | What the customer paid/owes the business |
| Cost price | What the item cost the business to purchase initially |
| Gross profit/mark up | Difference between selling and cost price |
| Stocktake | Physical inventory on hand is counted manually to verify the balance |
| Net realizable value | Estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale |
| Purpose of NRV | To avoid overstating assets in balance sheet and ensure losses are recognized in income statement when they occur |
Created by:
tacoloco135
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