2.10 cost of sales
TRANSCRIPT
2.10
COST OF SALES
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© Michael Allison. Author’s permission required for external use.
A sports store sells a pair of runners for cash for $200…
But how much Profit has the business made?
Business Customer
Assets LiabilitiesOwner’s
Equity= +
Cash $200
$200 $0 $200
Capital $200
2.10 COST OF SALES
© Michael Allison. Author’s permission required for external use.
Why isn’t the firm’s Profit the ful l $200?
Because, before the firm sold the shoes, the firm bought the shoes for $50
The $50 the firm paid for the shoes is an Expense called “Cost of Sales”
Business CustomerSupplier
Assets LiabilitiesOwner’s
Equity= +
Cash $200
$150 $0 $150
Capital $200
Inventory $50 Capital $50
2.10 COST OF SALES
© Michael Allison. Author’s permission required for external use.
Recording sales of stock requires two items to be entered – a firm sold stock
for $1 ,000 plus GST of $100 which original ly cost $400
First item – the sale: the business is earning revenue and collecting GST.
Cash sale
Credit sale
2.10 COST OF SALES
Assets Liabilities Owner’s
Equity
Cash at Bank Debtors Stock GST Liability Creditors Loan Capital
1,100 100 1,100
Assets Liabilities Owner’s
Equity
Cash at Bank Debtors Stock GST Liability Creditors Loan Capital
1,100 100 1,100
Assets Liabilities Owner’s
Equity
Cash at Bank Debtors Stock GST Liability Creditors Loan Capital
1,100 100 1,100
Assets Liabilities Owner’s
Equity
Cash at Bank Debtors Stock GST Liability Creditors Loan Capital
1,100 100 1,000
Assets Liabilities Owner’s
Equity
Cash at Bank Debtors Stock GST Liability Creditors Loan Capital
1,100 100 1,000
Assets Liabilities Owner’s
Equity
Cash at Bank Debtors Stock GST Liability Creditors Loan Capital
1,100 100 1,000
Assets Liabilities Owner’s
Equity
Cash at Bank Debtors Stock GST Liability Creditors Loan Capital
1,100 100 1,000
Assets Liabilities Owner’s
Equity
Cash at Bank Debtors Stock GST Liability Creditors Loan Capital
1,100 100 1,000
© Michael Allison. Author’s permission required for external use.
Recording sales of stock requires two items to be entered – a firm sold stock
for $1 ,000 plus GST of $100 which original ly cost $400
Second item – the cost of sale: stock is being sacrificed to make a sale. This is
an expense it is called cost of sales
Cost of sale
2.10 COST OF SALES
Assets Liabilities Owner’s
Equity
Cash at Bank Debtors Stock GST Liability Creditors Loan Capital
400 400
Assets Liabilities Owner’s
Equity
Cash at Bank Debtors Stock GST Liability Creditors Loan Capital
400 400
Assets Liabilities Owner’s
Equity
Cash at Bank Debtors Stock GST Liability Creditors Loan Capital
400 400
© Michael Allison. Author’s permission required for external use.
What is Cost o f Sa les ?
When stock is sold, it decreases the Stock [Asset] balance
This amount is effectively transferred into the Cost of Sales [E] account
E.g. A firm makes a sale of $800 plus $80 GST (cost price of the stock sold was $300)
Stock $100 Stock $100 Stock $100
Stock $100 Stock $100 Stock $100
Stock $100 Stock $100 Stock $100
1. Before sale – firm has $900 worth
of Stock [Asset]in its backroom
2. Firm sells $300 worth of stock
3. Value of the stock sold is transferred into an
Expense account called Cost of Sales
Cost of Sales [Expense]4. Value of Stock [Asset] is now $600
4. Value of Cost of Sales [Expense] is
$300
2.10 COST OF SALES
© Michael Allison. Author’s permission required for external use.
Transact ion #5: sold goods for cash $20,000 plus $2,000 GST (the cost price
of the goods sold was $9,000). . .
2.10 COST OF SALES
A L OE= + 13,000 2,000 11,000
Balance Sheet
Assets $ Liabilities $
Cash at bank 89000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 2500
Stock 15000 Owner’s Equity
Capital 80000
TOTAL ASSETS 116500 TOTAL EQUITIES 116500
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
22,000 2,000 20,000
9,000 9,000
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
22,000 2,000 20,000
9,000 9,000
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
22,000 2,000 20,000
9,000 9,000
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
22,000 2,000 20,000
9,000 9,000
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
22,000 2,000 20,000
9,000 9,000
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
22,000 2,000 20,000
9,000 9,000
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
22,000 2,000 20,000
9,000 9,000
Balance Sheet
Assets $ Liabilities $
Cash at bank 89000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 2500
Stock 15000 Owner’s Equity
Capital 80000
TOTAL ASSETS 116500 TOTAL EQUITIES 116500
Balance Sheet
Assets $ Liabilities $
Cash at bank 111000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 2500
Stock 15000 Owner’s Equity
Capital 80000
TOTAL ASSETS 116500 TOTAL EQUITIES 116500
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
22,000 2,000 20,000
9,000 9,000
Balance Sheet
Assets $ Liabilities $
Cash at bank 89000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 2500
Stock 15000 Owner’s Equity
Capital 80000
TOTAL ASSETS 116500 TOTAL EQUITIES 116500
Balance Sheet
Assets $ Liabilities $
Cash at bank 111000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 15000 Owner’s Equity
Capital 80000
TOTAL ASSETS 116500 TOTAL EQUITIES 116500
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
22,000 2,000 20,000
9,000 9,000
Balance Sheet
Assets $ Liabilities $
Cash at bank 89000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 2500
Stock 15000 Owner’s Equity
Capital 80000
TOTAL ASSETS 116500 TOTAL EQUITIES 116500
Balance Sheet
Assets $ Liabilities $
Cash at bank 111000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 80000
TOTAL ASSETS 116500 TOTAL EQUITIES 116500
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
22,000 2,000 20,000
9,000 9,000
Balance Sheet
Assets $ Liabilities $
Cash at bank 89000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 2500
Stock 15000 Owner’s Equity
Capital 80000
TOTAL ASSETS 116500 TOTAL EQUITIES 116500
Balance Sheet
Assets $ Liabilities $
Cash at bank 111000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 91000
TOTAL ASSETS 116500 TOTAL EQUITIES 116500
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
22,000 2,000 20,000
9,000 9,000
Balance Sheet
Assets $ Liabilities $
Cash at bank 89000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 2500
Stock 15000 Owner’s Equity
Capital 80000
TOTAL ASSETS 116500 TOTAL EQUITIES 116500
Balance Sheet
Assets $ Liabilities $
Cash at bank 111000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 91000
TOTAL ASSETS 127500 TOTAL EQUITIES 116500
Balance Sheet
Assets $ Liabilities $
Cash at bank 89000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 2500
Stock 15000 Owner’s Equity
Capital 80000
TOTAL ASSETS 116500 TOTAL EQUITIES 116500
Balance Sheet
Assets $ Liabilities $
Cash at bank 111000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 91000
TOTAL ASSETS 127500 TOTAL EQUITIES 127500
© Michael Allison. Author’s permission required for external use.
Transact ion #6: paid wages of $500.. .
2.10 COST OF SALES
A L OE= + 500 0 500
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
500 500
Balance Sheet
Assets $ Liabilities $
Cash at bank 111000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 91000
TOTAL ASSETS 127500 TOTAL EQUITIES 127500
Balance Sheet
Assets $ Liabilities $
Cash at bank 110500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 91000
TOTAL ASSETS 127500 TOTAL EQUITIES 127500
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
500 500
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
500 500
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
500 500
Balance Sheet
Assets $ Liabilities $
Cash at bank 111000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 91000
TOTAL ASSETS 127500 TOTAL EQUITIES 127500
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
500 500
Balance Sheet
Assets $ Liabilities $
Cash at bank 111000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 91000
TOTAL ASSETS 127500 TOTAL EQUITIES 127500
Balance Sheet
Assets $ Liabilities $
Cash at bank 110500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 90500
TOTAL ASSETS 127500 TOTAL EQUITIES 127500
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
500 500
Balance Sheet
Assets $ Liabilities $
Cash at bank 111000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 91000
TOTAL ASSETS 127500 TOTAL EQUITIES 127500
Balance Sheet
Assets $ Liabilities $
Cash at bank 110500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 90500
TOTAL ASSETS 127000 TOTAL EQUITIES 127500
Balance Sheet
Assets $ Liabilities $
Cash at bank 111000 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 91000
TOTAL ASSETS 127500 TOTAL EQUITIES 127500
Balance Sheet
Assets $ Liabilities $
Cash at bank 110500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 90500
TOTAL ASSETS 127000 TOTAL EQUITIES 127000
© Michael Allison. Author’s permission required for external use.
Transact ion #7: the owner made cash drawings of $1,000.. .
2.10 COST OF SALES
A L OE= + 1,000 0 1,000
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
1,000 1,000
Balance Sheet
Assets $ Liabilities $
Cash at bank 110500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 90500
TOTAL ASSETS 127000 TOTAL EQUITIES 127000
Balance Sheet
Assets $ Liabilities $
Cash at bank 109500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 90500
TOTAL ASSETS 127000 TOTAL EQUITIES 127000
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
1,000 1,000
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
1,000 1,000
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
1,000 1,000
Balance Sheet
Assets $ Liabilities $
Cash at bank 110500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 90500
TOTAL ASSETS 127000 TOTAL EQUITIES 127000
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
1,000 1,000
Balance Sheet
Assets $ Liabilities $
Cash at bank 110500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 90500
TOTAL ASSETS 127000 TOTAL EQUITIES 127000
Balance Sheet
Assets $ Liabilities $
Cash at bank 109500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 89500
TOTAL ASSETS 127000 TOTAL EQUITIES 127000
Assets Liabilities Owner’s
Equity
Cash at Bank Stock Shop Fittings GST Liability Creditors Loan Capital
1,000 1,000
Balance Sheet
Assets $ Liabilities $
Cash at bank 110500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 90500
TOTAL ASSETS 127000 TOTAL EQUITIES 127000
Balance Sheet
Assets $ Liabilities $
Cash at bank 109500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 89500
TOTAL ASSETS 126000 TOTAL EQUITIES 127000
Balance Sheet
Assets $ Liabilities $
Cash at bank 110500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 90500
TOTAL ASSETS 127000 TOTAL EQUITIES 127000
Balance Sheet
Assets $ Liabilities $
Cash at bank 109500 Loan 20000
Shop fittings 10000 Creditors 16500
GST refund 500
Stock 6000 Owner’s Equity
Capital 89500
TOTAL ASSETS 126000 TOTAL EQUITIES 126000
© Michael Allison. Author’s permission required for external use.
TASK
In-class Homework
Ex2.5 – March 5th and 6th X
Ex2.6 X
Ex2.7 X
Ex2.8 X
Ex2.9 X
Ex2.10 X