YEAREND ACCOUNTING PROCEDURES Inventory adjustments Grade 10 Accounting

YEAR–END ACCOUNTING PROCEDURES Inventory adjustments Grade 10 Accounting Module 10 Lesson 5

INVENTORY ADJUSTMENTS TRADING STOCK • Trading stock account records all movements of stock during year • Balance in the Trading Stock account indicates value of stock on hand at the end of the year • This balance should agree with the stock on hand according to the physical stock count • However, in most cases there is a difference between the two

INVENTORY ADJUSTMENTS TRADING STOCK DEFICITS • A Trading Stock Deficit occurs when the physical stock count is less than the Trading Stock account balance • Causes of a Trading Stock Deficit – – Stock theft/shoplifting/leakages/shrinkages Inaccurate calculations of mark-ups Errors in stock-taking Omissions of accounting entries in the trading stock account • A large deficit needs to be investigated by management. • Corrective measures need to be taken – Improving security – Better stock control methods

INVENTORY ADJUSTMENTS TRADING STOCK SURPLUS • A Trading Stock Surplus occurs when the physical stock count is more than the Trading Stock account balance • Causes of a Trading Stock Surplus – Not updating the trading stock account with the stock purchases – Inaccurate calculations of mark-ups – Errors in stock-taking

TRADING STOCK • TRADING STOCK DEFICIT – Trading stock deficit account = expense (loss) – Debit: Trading stock deficit difference between Credit: Trading Stock account & stock count • D= Difference = Debit : ) • TRADING STOCK SURPLUS – Trading stock surplus account = income – Debit: Trading Stock difference between Credit: Trading Stock surplus account & stock count

TRADING STOCK DEFICIT • Example: On 28 February 2008, the following balance appeared in the Pre-adjustment Trial Balance of Calc Traders: Trading Stock R 45 780 Adjustments • A physical count of stock on 28 February 20. 8 revealed an amount of R 45 000.

RECORDING TRADING STOCK DEFICIT JOURNAL GENERAL JOURNAL Debit Trading Stock Deficit 780 Trading Stock account = R 45 780 000 Difference = R 780 Credit 780 > Stock Count = R 45

RECORDING TRADING STOCK DEFICIT: LEDGER GENERAL LEDGER TRADING STOCK Feb 28 Balance bd 45 780 Feb 28 Trading Stock GJ 780 Balance c/d 45 000 Deficit 45 780 Mar 1 Balance bd 45 000 TRADING STOCK DEFICIT Feb 28 Trading Stock GJ 780 45 780

RECORDING TRADING STOCK DEFICIT ACCOUNT DEBIT ACCOUNT CREDIT Trading Stock Deficit Trading Stock ASSETS = OWNER’S EQUITY + - R 780 LIABILITIES

TRADING STOCK SURPLUS • Example: On 28 February 2008, the following balance appeared in the Pre-adjustment Trial Balance of Spot-On Traders: Trading Stock R 78 300 Adjustments • A physical count of stock on 28 February 20. 8 revealed an amount of R 80 000.

RECORDING TRADING STOCK SURPLUS JOURNAL GENERAL JOURNAL Debit Trading Stock Credit 1 700 Trading Stock Surplus Trading Stock account = R 78 300 Difference = R 1 700 < Stock Count = R 80 000

RECORDING TRADING STOCK SURPLUS: LEDGER GENERAL LEDGER TRADING STOCK Feb 28 Balance Trading stock surplus bd GJ 78 300 Feb 28 Balance cd 1 700 80 000 Feb 28 Balance bd 80 000 TRADING STOCK SURPLUS Feb 28 Trading Stock GJ 1 700

RECORDING TRADING STOCK SURPLUS ACCOUNT DEBIT ACCOUNT CREDIT ASSETS = Trading Stock Surplus + R 1 700 OWNER’S EQUITY + + R 1 700 LIABILITIES