Tag Archives: Stock

SALES RETURNS

On 24 July, 2010 a customer returned another faulty toaster to Wantirna Electrical. The customer B. Brown, purchased the item on account and was charged $99 including GST for the toaster and wanted a full refund.

Use the stock card from the previous example to complete this transaction. 

Stock Card

Stock Item: Toaster                                        Location:

Stock Code:                                                     Supplier: Burnt Bread Manufacturing

General Journal

Wantirna Electrical – General Ledger

Stock Control (A)

Debtors Control (A)

GST Clearing (A/L)

Sales Returns (-R)

Wantirna Electrical – Debtors Subsidiary Ledger 

Debtor – B Brown

On occasions customers will return goods they have purchased. Perhaps the goods were faulty or in some way unsuitable. Similarly, businesses may need to return goods to suppliers.

Questions

Why might stock be returned?

What is the source document used for returns? List the contents of this document?

PURCHASE RETURNS

On 20 June, 2010 Wantirna Electrical returned 4 faulty toasters to Burnt Bread Manufacturing. The toasters were purchased for $50 each plus GST. (Credit Note 21).

Record this transaction in the stock card of Wantirna Electrical.

Stock Card

Stock Item: Toaster                                        Location:

Stock Code:                                                     Supplier: Burnt Bread Manufacturing

Now record the transaction in the General Journal of Wantirna Electrical and post to the General Ledger and Creditors Subsidiary Ledger.

General Journal

Wantirna Electrical – General Ledger

Stock Control (A)

Creditors Control (L)

GST Clearing (A/L)

Wantirna Electrical – Creditors Subsidiary Ledger

Creditor – Burnt Bread Manufacturing (L)

The above format shows the correct layout for the profit and loss statement to adjusted gross profit. It is necessary to include all the items that are part of ‘getting stock into a condition and location ready for sale’ as part of the calculation of cost of goods sold.

1. What is the role of a physical stocktake?
2. How is a stock loss / stock gain is recorded in the stock card.
3. In times of rising prices, how is a stock loss / stock gain treated in the stock card?
4. Show the General Journal entry required to record a stock loss / stock gain.
5. What is the effect of a stock loss / stock gain on assets, liabilites and owner’s equity?

It is important for any business (whether it is a large organisation or a sole trader business) to know how much and what type of stock they have on hand. Stock refers to all the goods a retailer has in store. It includes all items on the shelves and fixtures and all items in the storage areas.

The aim of stock control is to try to balance the amount of goods a retailer has in the store against the amount of sales that the store makes. A business will try to maximise it’s stock turnover while carrying the least amount of stock possible. Not enough stock leads to lost sales. Too much stock could lead to the need for marking down the stock in order to turn it over, which reduces the margin.

An effective stock control system will minimise stock loss through reducing errors, reducing waste and minimising theft. It will help reduce the costs associated with stock loss, increase sales and ultimately increase profits.

Efficient stock control reduces the risk of accidents and injury through good housekeeping, as well as reducing the costs of insurance, workers’ compensation payments and the time lost by injured staff. Having a neat, tidy clean store creates a very good impression with the customers, encouraging them to enter the store and make a purchase. It also helps staff feel positive and enjoy their working environment.

Efficient stock control, including stock rotation systems, means old stock does not accumulate and pass the use-by date or become obsolete or out of fashion.

In summary, efficient stock control policies and procedures reduce costs, increase sales and therefore increase profit.