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Inventories
INVENTORIES
After studying this chapter, you should be able to:
1 2 3 4 5 What inventories are? Classification of inventories How the inventories are valuated? How it works inventories account? Accounting transactions with inventories
Structure of INVENTORIES
Raw materials - materials and components scheduled for use in manufacturing process (wood for furniture, steel for cars , brick for houses s.o.) Work in progress, WIP - materials and components that have begun their transformation to finished goods but which are not yet finished (walls for houses). Finished goods - goods ready for sale to customers. (houses) Goods (merchandise) for resale - Good purchased for resale (a house for a real estate company)
VALUATION OF INVENTORIES
Inventories (raw material, finished goods, goods for resale) are valuated at COST:
Cost of purchase (for raw materials)= invoice price + other costs (transportation, taxes, s.o)
Product cost (for finished googs) = all charges which include direct materials, direct labor, and manufacturing overhead costs (indirect labor, and such items as insurance, electricity) Selling price (goods for resale) = cost of purchase + commercial addition (%) + VAT (24%)
INVENTORIES ACCOUNTS
ACCOUNTS 301 Raw materials 302 Consumables 331 Work in progress 345 Finished goods Tipe A A A A
A
E&L E&L
Debit (+)
Purchase of inventories (raw materials, consumables, goods for resale) Inventories = Accounts payable Obtaining inventories (work in progress or finished goods) from manufacturing process Inventories = Potential revenues Receiving inventories from shareholders Inventories = Receivable face to shareholders
Credit (-)
Disposal (exit) of inventories because of consumption (raw materials, consumables) or sale (finished goods or goods for resale) Expenses = Inventories
INVENTORIES ACCOUNTS
ACCOUNTS 301 Raw materials 302 Consumables 331 Work in progress 345 Finished goods 371 Goods purchased for resale 378 Prices differences on goods purchased for resale 4428 VAT under settlement Tipe A A A A A E&L E&L
378 Prices differences on goods purchased for resale - represent commercial addition (potential gain obtained by the company after the selling process )
Credit (+)
increase with the value of commercial addition of goods for resale purchased Goods for resale = Commercial Addition (Prices differences)
Debit (-)
Decrease of commercial addition for sale goods Commercial Addition (Prices differences) = Goods for resale
Credit balance represents the total value of commercial addition for the goods for resale held by
company
Finished goods:
Obtaining finished goods:
345 Finishing goods, A, +, D 711 Variation in inventory (potential revenues), E&L, +, C 345 Finishing goods = 711 Variation in inventory
Adding commercial addition in order to compose the final price for sale:
371 Goods for resale, A, +, D 378 Prices differences on goods purchased for resale (potential gain) , E&L, +, C 371 Goods for resale = 378 Prices differences on goods purchased for resale