I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 

129 

 

The cost of goods sold is calculated as: 

 

Opening inventory + purchases – closing inventory. 

 

Carriage inwards is included in the cost of purchases. Carriage outwards is a selling expense. 

 

Opening inventories brought forward in the inventory account are transferred to the profit or loss 

account, and so at the end of the accounting year the balance on the inventory account ceases to be the 

opening inventory value b/f and becomes instead the closing inventory value c/f. 

 

The value of closing inventories is accounted for in the nominal ledger by debiting an inventory account 

and crediting the profit or loss account at the end of an accounting period. Inventory will therefore have 

a debit balance at the end of a period, and this balance will be shown in the statement of financial 

position as a current asset. 

 

The quantity of inventories held at the year end is established by means of a physical count of inventory 

in an annual counting exercise, or by a 'continuous' inventory count. 

 

The value of inventories is calculated at the lower of cost and net realisable value (NRV) for each 

separate item or group of items. Cost can be arrived at by using first in, first out (FIFO) or weighted 

average costing (AVCO). 

 

IAS 2 Inventories lays out the required accounting treatment for inventories under International Financial 

Reporting Standards. 

 

 

 

CHAPTER ROUNDUP 

BPP Tutor Toolkit Copy

---