Archive about 'Stock Write Off and Provision'

Importance Of Correct Valuation of Stock:Effect On Gross Margin,Net Income & Asset Valuation And Capital (Part 8)

It is important to understand the reason for the need to have correct valuation of stock. Simply, any incorrect stock valuation will have direct impact on the gross margin of an enterprise leading right down to the bottom-line which is the net income/profit of an enterprise. As the closing stock is in the current asset [...]

Accounting For Stock: Valuation of Stock At The Lower Of Cost & Net Realizable Value ( Part 7)

The usual accounting basis for stock valuation is the LOWER of cost & Net realizable value.   What is cost? Cost as mentioned in my other article is the price that the enterprise has paid the suppliers to acquire the goods (historical cost concept)   Whilst, Net Realisable Value (NRV) is the total received from sales after [...]

Accounting Treatment For Increase or (Decrease) of Provision For Stock Obsolescence(Part 6)

INCREASE IN PROVISION FOR STOCK OBSOLESCENCE: Assuming a provision for Stock Obsolescence of $100,000 is created at Quarter 1. At end of Quarter 2, you have re-done the provision and noted that you need increase a further amount of $50,000. How should we treat this increase in provision? For Quarter, Let’s us have the Original [...]

Different Methods of Creating Provision for Stock / Inventory Obsolescence (Part 5)

Like the provision for doubtful debts, the accounting for provision for stock obsolescence is almost similar. [please refer to my earlier article on stock written off] This article is to discuss the various methods of creating provision for stock obsolescence METHOD 1: GENERAL PROVISION BASED ON AS % OF CLOSING STOCK BALANCE This methodology is [...]

Accounting For Stock: Purchases Of Goods & Its Associated Costs (Part 3)

In Part 2, we have learned about the purchases account. When an enterprise purchases goods from the suppliers, besides the cost charged by the suppliers, we have other types of costs which are also part of the cost of the purchases of goods /services. OTHER TYPES OF COSTS OF PURCHASES COMPRISES: Transportation costs. Other terms [...]

Accounting For Stock: What Is Cost Of Goods Sold And Methodology ( Part 2)

WHAT IS COST OF GOODS SOLD?   In Part 1, we understood what is stock and what stock stand for. These stock-in-trade or inventories are purchases of goods by a business for resale to the customers with the intention of earning a profit in the process. On the other hand, cost of goods sold is [...]

Accounting For Stock/Inventory: What Is Stock And Why Hold Stock ( Part 1)

WHAT IS STOCK/INVENTORY? Stock/Inventory forms part of the operating cycle of the business. The enterprise purchases stock from the supplier in raw material form, convert it into work in progress and finally finished goods for resale to customers. Stock/inventory is part of the Current Asset Category of the Balance Sheet. To define stock, it is [...]