Understanding Stock and Purchase Transactions
In this scenario, we analyze the stock and purchase transactions to determine the cost of goods sold (COGS) and the closing stock.
Key Definitions
- Opening Stock: The value of inventory at the beginning of the period.
- Closing Stock: The value of inventory at the end of the period.
- Purchases: Total goods acquired during the period.
- Return Outward: Goods returned to suppliers, reducing purchases.
- Return Inward: Goods returned by customers, increasing sales.
Calculating Cost of Goods Sold (COGS)
To find COGS, we use the formula:
- COGS = Opening Stock + Purchases - Closing Stock
Identifying Values
- Opening Stock: 40,000
- Purchases: 550,000
- Return Outward: 5,000 (deduct from purchases)
- Return Inward: 20,000 (not relevant for COGS)
Adjusted Purchases Calculation
- Adjusted Purchases = Purchases - Return Outward
- Adjusted Purchases = 550,000 - 5,000 = 545,000
Final COGS Calculation
- COGS = Opening Stock + Adjusted Purchases - Closing Stock
- COGS = 40,000 + 545,000 - 50,000
- COGS = 535,000
Summary of Results
- Opening Stock: 40,000
- Adjusted Purchases: 545,000
- Closing Stock: 50,000
- COGS: 535,000
This breakdown helps in understanding inventory management and financial reporting effectively.