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Chapter Three - The Asset of Stock

The document outlines the principles of stock movement, including purchases and sales on credit and cash, as well as returns. It explains the differences between various accounts related to stock transactions and emphasizes the importance of accurate recording in accounting. Additionally, it provides specific examples of stock transactions and their implications for financial records.

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yusufqardhawi49
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21 views4 pages

Chapter Three - The Asset of Stock

The document outlines the principles of stock movement, including purchases and sales on credit and cash, as well as returns. It explains the differences between various accounts related to stock transactions and emphasizes the importance of accurate recording in accounting. Additionally, it provides specific examples of stock transactions and their implications for financial records.

Uploaded by

yusufqardhawi49
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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The asset of stock

Topics:
1. Stock movement
2. Purchase of stock on credit
3. Purchase of stock for cash
4. Sales of stock on credit
5. Sales of stock for cash
6. Return inwards
7. Return outwards
8. A worked example
9. Special meaning of sales and purchase
10.Comparison of cash and credit transactions for purchases and sales
Objectives:
1. Explain why it is inappropriate to use a stock account to record increases and decreases
in stock.
2. Describe the two causes of stock increasing
3. Describe the two causes of stock decreasing
4. Explain the difference between a purchase account and a return outwards account
5. Explain the difference between a sales account and a return outwards account
6. Explain how to record increases and decreases of stock in the appropriate accounts
7. Explain the meaning of the terms purchases and sales as used in accounting
8. Explain the differences in recording purchases on credit as compared to recording
purchases that are paid immediately in cash
9. Explain the differences in recording sales on credit as compared to recording sales that
are paid immediately in cash.
Topic one: stock movement:
Normally, goods and services are sold above cost price, the difference being profit. When
goods and services are sold for less than their cost, the difference is a loss.
The increase and decrease of stock
1. The increase of stock
a. The purchase of additional goods (purchase account)
b. The return in to the business of goods previously sold. (return inward account),
(sales return account).
2. The decrease of stock
a. The sales of goods (sales account)
b. The return out of the business of goods previously purchased. (return outward
account), (purchase return account).
Topic two: purchase of stock on credit
On 1 August 2008, goods costing $165 are bought on credit from D Henry.

Topic three: purchase of stock on cash


On 2 August 2008, goods costing $310 are bought.
Topic four: sales of stock on credit
On 3 August 2008, goods were sold on credit for $375 to J Lee.

Topic five: sales of stock for cash


On 4 August 2008, goods are sold for $55, cash being received immediately at the time of sale

Topic six: return inwards:


on 5 August 2008, goods which have been previously sold to F Lowe for $29 are now returned
to the business.
This could be various reasons such as:
• We sent goods of the wrong size, color or the wrong model.
• The goods may have been damaged in transit
• The goods are of poor quality
Topic seven: return outwards:
On 6 August 2008, goods previously bought for $96 are returned by the business to K Howe.

Topic nine: special meaning of sales and purchases:


Purchases:
In accounting means the purchase of those goods which the business buys with the
prime intention of selling.
Sales:
In accounting means the sale of those goods in which the business normally deals and
which were bought with the prime intention of resale.
If we do not keep to these meaning, we would find it very difficult to identify which of
the items in the purchase and sales accounts were stock and which were assets that had been
bought to be used.
Topic ten: comparison of cash and credit transactions for purchases and sales:
1. Purchase for cash:
• Debit the purchase account
• Credit the cash account
2. Purchase on credit:
• Debit the purchase account
• credit the supplier’s account
payment
• debit the supplier’s account
• credit the cash account

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