How to adjust the books of account when Physical Stocktaking is not precisely on the Accounting Date

January 23rd, 2011 Comments off
Share |

The dual purpose of a physical stock take is to ensure:-

  • the physical existence and the value of the stocks owned by the firm at the Balance Sheet Date.

Note that stocks or inventories comprise raw material, work-in-progress or completed product. Any discrepancies between the book stocks and physical count must be investigated and reconciled otherwise the profit of the business will not be accurate.

Note that physical stocktaking may not be possible on the accounting date – the actual count is normally carried out a few days before or after the accounting date.

So what should we do?  The answer is to ensure that all transactions that took place between the count date and Balance Sheet date must be noted and all adjustments must be made to arrive at the actual figure at the Balance Sheet date.

Illustration:

Question:

Company A ‘s year end accounting date is on 31 st Dec. However, it conducted its physical stock take only on 5 th January. The details as follows:

Actual value of stock at date of stocktaking re: 5th January = $5,050

Following transactions took placed between  Jan 1 to Jan 4:

(a)    Goods received $510

(b)   Sales during the period $420 where cost of sales is $300

(c)    Goods stored at other places  were not included $610

(d)   Some of the stock sheets were overcast by $110

(e)   Third party stocks of $480 were included in the count

Solution:

Company A needs to prepare a statement of adjusted stock at 31 st December to reconcile all transactions that took place between the count date and Balance Sheet and all adjustments must be made to arrive at the actual figure at the Balance Sheet date.

STATEMENT OF ADJUSTED STOCK AT 31 ST DECEMBER

Stock value at 5 th January                                      $5,050

Add:

(b)   Cost of sales not included                             $300

(c)    Goods stored at other places                       $610

Less:

(a)    Goods received and included                      ($510)

(d)   Stock sheets overcast or overstated          ($110)

(e)   Third parties included                                  ($480)

STOCK VALUE AT 31 ST DECEMBER                   $4,860

Comments are closed now.

Financial Accounting

 
 

Advertise Here | Brain Teasers/Puzzles | Greeting Cards | Inspirational Quotes | Jokes/Humor | Useful Links | Motivational Stories | Resource | Shopping | Share/Express Your Views | Testimonials | Universities/Colleges | Words of Wisdom from Religions | FREE POSTING OF ACCOUNTING & FINANCE JOBS VACANCY|