2nd Edition by Edwin Olima FCCA
have now reached the end of our trading period and we should find
out the how many items of goods
have not yet sold and also put a value on them.
To do this carry out the following steps:
Go through the purchase
invoices for traded goods (computers in this case)
also the sales invoices and credit note
the goods and list the stock quantities out in date order in the
table below. The first two have been done:
Record: 1333 GHZ Computers
You should be left with
3 computers unsold. These will be valued at £500.00 each (see the
last purchase invoice dated
compare your answer to the one in the answer section of the book.
main assumption in the above valuation
is that the first batch
sold out before the next batch of goods in. In accounting
terminology this is called the First
in First out
method of valuing stock. One could say that this is the traditional
and most commonly used method. However you should note that there
are other valuation
methods depending on the
type of business and the type of product being traded. Here again
your business adviser can help you with the most appropriate method
for your business.
our example we have only used one type of stock and it is easy to
create the above table. In practice, businesses with lots of stock
items would need stock records in respect of each item of stock.
These records would add stock brought in to shop (or warehouse) and
deduct from this the quantity of stock going out as sales. The
balance of stock at the end of the period would then be valued
according to the latest purchase invoice values (assuming FIFO
is important to verify the balance of stock items that the records
show as stock of goods
the period end. To do this, a business would carry out a stock take
. The quantity ascertained during
the stock take should in theory match the balance of goods shown by
the stock records.
practice some businesses do a stock take
the end of each period to determine the closing stock
than keep detailed stock records. The disadvantage of this is that
one may not know if stocks have been misappropriated. The advantage
being less administration work.