9.13 accounting for stock gains and losses
TRANSCRIPT
9.13
ACCOUNTING FOR STOCK
GAINS AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
Whenever a stock loss is identified, the Stock Card must be updated to
reflect this.
Example: the Stock Card says there should be 9 units on hand.
However, a physical stocktake results in only 7 units being actually
counted.
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
Stock Loss
2 units
Physical stocktake
7 units= <Stock Card
9 units
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
How should this be included in the Stock Card?
The business has “ lost” 2 units and the Stock Card needs to be adjusted to
show this – an OUT entry must be made
At the moment the Stock Card looks l ike this…
How should the 2 lost units be valued?
At $70 ?
At $80?
At $75?
Stock item: Product X IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31 Jul Balance 4 70 280
5 80 400
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
Stock item: Product X IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31 Jul Balance 4 70 280
5 80 400
Answer:
So in this case the 2 lost units will be valued at?.. .
This business has suffered a stock loss of $140
Stock losses = valued using First in First Out (FIFO)
Stock item: Product X IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31 Jul Balance 4 70 280
5 80 400
31 Jul Memo 6 2 70 140 2 70 140
5 80 400
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
Stock loss represents an expense…
Stock Loss
Characteristic #1
• There is an outflow of
economic benefits
• The firm has lost stock from
its inventory
Characteristic #2 Assets
(the Stock Control asset)
Characteristic #3 Owner’s Equity
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
Identifying a stock loss of $140 has two effects:
Stock Control [A] goes down as there is less stock
Stock loss is an Expense which decreases Owner’s Equity
ASSETS LIABILITIES OWNER’S EQUITY= +
Stock Control
$140
Capital
$140 = +
No effect
$0
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
Stock Control [A]
31 Jan Stock loss 140
General Journal
Date ParticularsGeneral Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Jan Stock loss [E] 140
Stock Control [A] 140
Stock loss of 2 pairs of shoes at $70
each (Memo 6)
Stock Loss [E]
31 Jan Stock control 140
General Journal
Date ParticularsGeneral Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Jan Stock loss [E] 140
Stock Control [A] 140
Stock loss of 2 pairs of shoes at $70
each (Memo 6)
General Journal
Date ParticularsGeneral Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Jan Stock loss [E] 140
Stock Control [A] 140
Stock loss of 2 pairs of shoes at $70
each (Memo 6)
General Journal
Date ParticularsGeneral Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Jan Stock loss [E] 140
Stock Control [A] 140
Stock loss of 2 pairs of shoes at $70
each (Memo 6)
Stock Loss [E]
31 Jan Stock control 140
Stock Control [A]
31 Jan Stock loss 140
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
General Journal
Date ParticularsGeneral Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Jan Stock loss [E] 140
Stock Control [A] 140
Stock loss of 2 pairs of shoes at $70
each (Memo 6)
Narration:
• Type of unit lost (e.g. “shoes”)
• No. units lost (e.g. 2)
• Cost of units lost (e.g. $70)
• Memo #
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
Whenever a stock gain is identified, the Stock Card must be updated
to reflect this.
Example: the Stock Card says there should be 13 units on hand.
However, a physical stocktake results in only 16 units being actually
counted.
Stock Gain
3 units
Physical stocktake
16 units= >Stock Card
13 units
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
How should this be included in the Stock Card?
The business has “gained” 3 units and the Stock Card needs to be adjusted to
show this – an IN entry must be made
At the moment the Stock Card looks l ike this…
How should the 3 gained units be valued?
At $40 ?
At $30?
At $35?
Stock item: Product X IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31 Jul Balance 3 40 120
10 30 300
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
Answer:
So in this case the 3 gained units wil l be valued at?. . .
This business has experienced a stock gain of $90
Stock gain = valued at the lowest cost of stock on hand
(application of the conservatism principle)
Stock item: Product X IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31 Jul Balance 3 40 240
10 30 300
Stock item: Product X IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31 Jul Balance 3 40 120
10 30 300
31 Jul Memo 13 3 30 90 3 40 120
13 30 390
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
Stock gain represents a revenue…
Stock Gain
Characteristic #1
• There is an inflow of
economic benefits
• The firm has gained stock
into its inventory
Characteristic #2 Assets
(the Stock Control asset)
Characteristic #3 Owner’s Equity
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
Identifying a stock gain of $90 has two effects:
Stock Control [A] goes up as there is more stock
Stock gain is a Revenue which increases Owner’s Equity
ASSETS LIABILITIES OWNER’S EQUITY= +
Stock Control
$90
Capital
$90 = +
No effect
$0
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
Stock Gain [R]
General Journal
Date ParticularsGeneral Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Jan Stock Control [A] 90
Stock Gain [R] 90
Stock gain of 3 hats at $30 each
(Memo 6)
Stock Control [A]
General Journal
Date ParticularsGeneral Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Jan Stock Control [A] 90
Stock Gain [R] 90
Stock gain of 3 hats at $30 each
(Memo 6)
General Journal
Date ParticularsGeneral Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Jan Stock Control [A] 90
Stock Gain [R] 90
Stock gain of 3 hats at $30 each
(Memo 6)
General Journal
Date ParticularsGeneral Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Jan Stock Control [A] 90
Stock Gain [R] 90
Stock gain of 3 hats at $30 each
(Memo 6)
Stock Control [A]
31 Jan Stock gain 90
Stock Gain [R]
31 Jan Stock control 90
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
General Journal
Date ParticularsGeneral Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Jan Stock Control [A] 90
Stock Gain [R] 90
Stock gain of 3 hats at $30 each
(Memo 6)
Narration:
• Type of unit lost (e.g. “hats”)
• No. units lost (e.g. 3)
• Cost of units lost (e.g. $30)
• Memo #
9.13 ACCOUNTING FOR STOCK GAINS
AND LOSSES
© Michael Allison, Trinity Grammar School. Author’s permission required for external use
TASK
In-class Homework
Ex9.12 part (a) Jul 31 + part (b) X
Ex9.9 X
Ex9.10 X
Ex9.11 X
Ex9.13 X
Ex9.14 X
Ex9.15 X