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Inventory & Cost of sales

Merchandise

Perpetual method

1/1/X1, XYZ had 1,000 units of merchandise 123, acquired at a weighted average cost of 10 per unit, on hand. 1/2/X1, it sold 2 units for 20 each in cash.

Dr/Cr

1/2/X1 | 2.1.X1

 

 

Cash

40

 

 

Revenue: Merchandise

 

40

Cost of merchandise sold

20

 

 

Inventory: Merchandise: 123

 

20


Same facts except, XYZ accounts for individual sales separately. 1/1/Y1, it purchased 1,000 units of merchandise UPC 123456 for 10.50 per unit.

Although IAS 2.25 requires | ASC 330-10-30-11 suggests that companies use average cost, FIFO or (US GAAP only) LIFO for inventory of this character, XYZ decided to use a specific identification method instead.

IAS 2.25: The cost of inventories, other than those dealt with in paragraph 23, shall be assigned by using the first-in, first-out (FIFO) or weighted average cost formula. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature or use, different cost formulas may be justified.

IAS 2.23: The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects shall be assigned by using specific identification of their individual costs.

ASC 330-10-30-11: ... if the materials purchased in various lots are identical and interchangeable, the use of identified cost of the various lots may not produce the most useful financial statements. This fact has resulted in the general acceptance of several assumptions with respect to the flow of cost factors such as FIFO, average, and LIFO to provide practical bases for the measurement of periodic income.

In making this judgment, XYZ considered that, since its internal accounting was based on the specific identification of individual inventory items, making the adjustments necessary to acheiving average cost/FIFO/LIFO reporting would bring it additional cost.

XYZ also considered that using a specific identification method would not lead to a material difference compared with average cost/FIFO/LIFO.

XYZ also considered that the specific identification of costs achieves the objective of inventory accounting as well as, if not better than, average cost/FIFO/LIFO.

ASC 330-10-10-1: A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues.

While IAS 2 does not specifically refer to "matching", it nonetheless suggests that matching is a worthwhile objective.

IAS 2.34: When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period in which the related revenue is recognised (a.k.a. matched).

CF 4.50: Expenses are recognised in the income statement on the basis of a direct association between the costs incurred and the earning of specific items of income. This process, commonly referred to as the matching of costs with revenues, involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events; for example, the various components of expense making up the cost of goods sold are recognised at the same time as the income derived from the sale of the goods.

On the basis of these considerations, XYZ concluded cost of making the adjustments necessary to fulfilling the letter of IFRS/US GAAP would outweigh the benefits, so decided on a method that achieves the comparable results, but is more cost effective.

1/1/X1 | 1.1.X1

 

 

Inventory: Merchandise: UPC 123456

10,500

 

 

Cash

 

10,500


1/2/X1 | 2.1.X1

 

 

Cash

40

 

 

Revenue: Merchandise

 

40.

Cost of merchandise sold

21

 

 

Inventory: Merchandise: UPC 123456

 

21

Periodic method

1/1/X1, XYZ had 250 units of merchandise #123 (acquired in X0 for 10 each) in stock. 1/5/X1, it acquired 500 units of merchandise #234 for 25 each. 1/15/X1, it acquired 700 units of merchandise #123 for 10 each. 1/30/X1, it acquired 1,000 units of merchandise #456 for 30 each.

Dr/Cr

1/5/X1 | 5.1.X1

 

 

Inventory: Purchases: Merchandise: 234

12,500

 

 

Accounts payable

 

12,500


Purchases is a temporary account that must to be closed at the end of each period.

Permanent (balance sheet) accounts are not closed at the end of the period and so their balance is taken to the balance sheet. In contrast, temporary accounts are closed at the end of each period and no balance to be taken to the balance sheet remains.

Since IFRS and US GAAP do not provide any guidance on the accounts to be used in the bookkeeping process, companies are free to set up any number of temporary accounts.

Its purpose is to match revenue and expenses.

IAS 2.34 states: When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period in which the related revenue is recognised. ...

While less explicit, ASC 330-10-10-1 states: A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues.

Since this guidance does not allow inventory to be expensed as acquired, when a periodic inventory method is used, a temporary Purchases account needs to be set up.

1/15/X1 | 15.1.X1

 

 

Inventory: Purchases: Merchandise: 123

7,000

 

 

Accounts payable

 

7,000


1/30/X1 | 30.1.X1

 

 

Inventory: Purchases: Merchandise: 456

30,000

 

 

Accounts payable

 

30,000


1/2/X1, it sold 2 units of #123 for 20. 1/7/X1, it sold one unit of #234 for 50 and three of #123 for 20.

1/2/X1 | 2.1.X1

 

 

Cash

40

 

 

Revenue: Merchandise

 

40


1/7/X1 | 7.1.X1

 

 

Cash

110

 

 

Revenue: Merchandise

 

110


During January, records showed that 800 units of #123, 300 of #234 and zero of #456 had been sold.


#

Units acquired

Units sold

Unit price

Purchases

Sales

Inventory

 

A

B

C

D = A x C

E = B x C

F = B + E

123

700

(800)

10

7,000

(8,000)

(1,000)

234

500

(300)

20

12,500

(7,500)

5,000

456

1,000

0

30

30,000

0

30,000

 

 

 

 

 

(15,500)

34,000

 

 

 

 

 

 

 

1/31/X1 | 31.1.X1

 

 

Cost of merchandise sold

15,500

 

Inventory: Merchandise: 234

5,000

 

Inventory: Merchandise: 456

30,000

 

 

Inventory: Purchases: Merchandise: 123

 

7,000

 

Inventory: Purchases: Merchandise: 234

 

12,500

 

Inventory: Purchases: Merchandise: 456

 

30,000

 

Inventory: Merchandise: 123

 

1,000


XYZ's policy is to make these adjustments at the end of each month.

A different periodicity, for example each quarter, would also be acceptable.

Same facts except, XYZ recognized purchases directly to cost of sales.

1/2/X1 | 2.1.X1

 

 

Cash

40

 

 

Revenue: Merchandise

 

40


1/5/X1 | 5.1.X1

 

 

Cost of merchandise sold

12,500

 

 

Accounts payable

 

12,500


1/7/X1 | 7.1.X1

 

 

Cash

110

 

 

Revenue: Merchandise

 

110


1/15/X1 | 15.1.X1

 

 

Cost of merchandise sold

7,000

 

 

Accounts payable

 

7,000


1/30/X1 | 30.1.X1

 

 

Cost of merchandise sold

30,000

 

 

Accounts payable

 

30,000


At the end of the period, it adjusted cost of sales (caveat).


#

Beginning

Purchases

Ending

Cost of Sales

Change

 

A

B

C

D = A + B + C

E = B - D

123

2,500

7,000

(1,500)

8,000

(1,000)

234

0

12,500

(5,000)

7,500

5,000

456

0

30,000

(30,000)

0

30,000

 

2,500

49,500

(36,500)

15,500

34,000

 

 

 

 

 

 

This procedure is not consistent with the explicit guidance provided by either IFRS or US GAAP.

Nevertheless, if adequate adjustments are made, the result would not be inconsistent with the intent of the guidance.

An more detailed discussion is provided in the next section: Nature of expense, function of expense.

1/31/X1 | 31.1.X1

 

 

Inventory: Merchandise: 234

5,000

 

Inventory: Merchandise: 456

30,000

 

 

Cost of merchandise sold

 

34,000

 

Inventory: Merchandise: 123

 

1,000

Retail method

XYZ is a retailer. 12/31/X0, its merchandise inventory stood at 240,000. During X1, it made purchases of 3,000,000 and sales of 4,500,000. 12/31/X1, its merchandise on hand, measured at retail price, was 480,000. To determine inventory cost, it applied retail method using its standard retail mark-up of 50%.

IAS 2.21: Techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method, may be used for convenience if the results approximate cost. ...

ASC 330-10-30-13: In some situations a reversed mark-up procedure of inventory pricing, such as the retail inventory method, may be both practical and appropriate. ...

Its inventory on 12/31/X0 had been 240,000.

Dr/Cr

1/1/X1 - 31.12.X1 | 1.1.X1 - 31.12.X1

 

 

Cash, Bank cards, etc.

4,300,000

 

 

Cash, Payables

 

4,300,000

Inventory: Merchandise: Purchases

3,000,000

 

 

Cash, Payables

 

3,000,000


12/31/X1 | 31.12.X1

 

 

Cost of merchandise sold

2,920,000

 

Inventory: Merchandise

320,000

 

 

Inventory: Merchandise: Purchases

 

3,000,000

2,920,000 = 240,000 + 3,000,000 - 320,000

320,000 = 480,000 ÷ (1+50%)

In more detail:

XYZ's stock on hand at at 12/31/X1:

Item #

Units in stock

Unit price

Merchandise at retail

Adjusted to cost

 

A

B

C = A x B

D = C ÷ (1 + 50%)

Merch.1

538

80.35

43,230

28,820

Merch.2

269

285.70

76,854

51,236

Merch.3

65

665.00

43,225

28,816

Merch.4

262

329.66

86,370

57,580

Merch.5

91

529.08

48,146

32,097

Merch.6

97

738.88

71,672

47,781

Merch.7

168

285.70

47,998

31,999

Merch.8

184

339.71

62,506

41,671

 

 

 

480,000

320,000


12/31/X1 | 31.12.X1

 

 

Cost of merchandise sold

2,920,000

 

Inventory: Merchandise: Merch. 1

28,820

 

Inventory: Merchandise: Merch. 2

51,236

 

Inventory: Merchandise: Merch. 3

28,816

 

Inventory: Merchandise: Merch. 4

57,580

 

Inventory: Merchandise: Merch. 5

32,097

 

Inventory: Merchandise: Merch. 6

47,781

 

Inventory: Merchandise: Merch. 7

31,999

 

Inventory: Merchandise: Merch. 8

41,671

 

 

Inventory: Merchandise Merch. 1

 

24,052

 

Inventory: Merchandise Merch. 2

 

12,425

 

Inventory: Merchandise Merch. 3

 

27,053

 

Inventory: Merchandise Merch. 4

 

57,287

 

Inventory: Merchandise Merch. 5

 

27,040

 

Inventory: Merchandise Merch. 6

 

29,303

 

Inventory: Merchandise Merch. 7

 

25,000

 

Inventory: Merchandise Merch. 8

 

37,840

 

Inventory: Merchandise: Purchases

 

3,000,000


At 12/31/X0

Item #

Units

Purch. Price

Sales price

Stock value

A

B

C = A x B

D=C÷(1+50%)

Merch. 1

450

80.17

36,078

24,052

Merch. 2

68

274.07

18,637

12,425

Merch. 3

61

665.23

40,579

27,053

Merch. 4

259

331.78

85,931

57,287

Merch. 5

78

520.00

40,560

27,040

Merch. 6

59

745.00

43,955

29,303

Merch. 7

150

250.00

37,500

25,000

Merch. 8

172

330.00

56,760

37,840

 

 

360,000

240,000

For illustration purposes, only a single, annual adjustment is shown.

Production

Full absorption costing

Full absorption costing (a.k.a. absorption costing or full costing) captures all of the costs that go into manufacturing a product (or providing a service).

These costs are subclassified as direct and indirect (a.k.a. overhead).

Direct costs are be further subclassified as direct material and direct wages while overhead as fixed (rent, depreciation, amortization, insurance, etc.) and variable (supervisor salaries, production supplies, utilities, quality control, repairs and maintenance, etc.)

Fixed does not necessarily mean linear.

For example, depreciation calculated using a diminishing balance method is still considered fixed. The difference between fixed and variable is that the latter correlates with production levels while the former does not.

Some overhead costs are, by their nature, always variable. For example the coke used to smelt iron or electricity used to power production machines.

Other overhead costs, for example supervisor salaries or maintenance, can be either fixed or variable (or a combination) depending on how they are determined.

For example, some companies compensate supervisors with fixed salary, at others a wage, while still others pay out bonuses when extra work calls for extra hours. Similarly, production managers can also receive bonuses during times of extra high production.

Costs like waste removal are also generally fixed, but can be subject to surcharges when extra heavy production leads to extra waste.

Maintenance of production buildings tends to be fixed, while maintenance of production machinery variable.

The proper allocation of overheads thus requires both judgment and an accounting system sufficiently flexible to cope with the variations.

While neither IFRS nor US GAAP use the term “full absorption costing” both require its use.

IAS 2.10: The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

IAS 2.12: ... [costs of conversion] include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings, equipment and right-of-use assets used in the production process, and the cost of factory management and administration. Variable production overheads are those indirect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials and indirect labour.

While its guidance is not nearly as detailed, US GAAP's requirements are the same.

ASC 330-10-30-1: The primary basis of accounting for inventories is cost, which has been defined generally as the price paid or consideration given to acquire an asset. As applied to inventories, cost means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location. It is understood to mean acquisition and production cost, and its determination involves many considerations.

The following examples illustrate several ways to achieve full absorption costing in manufacturing. Other methods, such as project accounting, are shown in the next section (see: Receivables and revenue).

Nature of expense, function of expense

As noted in the COA release notes (see: Basic Universal COA), using a general ledger including both nature of expense and function of expense classifications makes practical sense.

In this simplified example, XYZ recognizes expenses (by nature) as they occur.

Matching expense to revenue is a key IFRS and US GAAP concept, which this example goes against.

While it is true that neither the IFRS nor US GAAP conceptual frameworks specifically define a "matching principle", the concept of matching expense to revenue is the basis for accrual accounting and reflected in numerous standards.

For example, IAS 2.34 states: When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period in which the related revenue is recognised. ...

While less explicit as to the exact timing of expense recognition, ASC 330-10-10-1 states: A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues.

Comparable guidance is provided by IFRS 15 | ASC 340:

IFRS 15.91 | ASC 340-40-25-1 states: An entity shall recognise as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs.

IFRS 15.91 states: If the costs incurred in fulfilling a contract with a customer are not within the scope of another Standard (for example, IAS 2 Inventories, IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets), an entity shall recognise an asset from the costs incurred to fulfil a contract ...

ASC 340-40-25-5 states: An entity shall recognize an asset from the costs incurred to fulfill a contract ...

Recognizing expenses before the associated revenue, contradicts this guidance even when it is necessary.

Nevertheless, provided adequate adjustments are made, the accounting procedure illustrated in this example would not contradict the overall aim of either IFRS or US GAAP guidance.

As noted above, this procedure is implicit in IFRS's nature of expense income statement.

Also as noted above, US GAAP merely states that "a major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues." It does not address the specific accounting procedure which must be used achieve this objective.

This implies, as long as care is taken to fulfill IFRS's and US GAAP's overall reporting objectives, expensing all costs as they arise and then making adjustments that will lead to them being reported in the same period as the associated revenue would be an acceptable policy, especially in jurisdictions where it would be more cost effective.

The procedure where inventory costs (particularly employee benefits, depreciation and other production overhead) are charged directly to expenses is common under many national GAAPs.

Under these GAAPs, increases or decreases to inventory are then taken to the profit and loss statement and presented as a "change in inventory".

Not only, as noted above, is this procedure is implicit in IFRS's allowing of a nature of expense income statement, it also reduces the number of differences between IFRS/US GAAP and national GAAP at those companies (subsidiaries) which must, in additional to IFRS/US GAAP for financial reporting purposes, also apply national GAAP for statutory and/or taxation purposes.

Besides simplifying accounting, this procedure is also a shortcut, which should help companies avoid having to recognize many transactions twice: once per IFRS/US GAAP and then again per national GAAP.

During the period (i.e. each month), XYZ expenses production costs (it does not rent any production assets).

It buys material for cash and on credit. It accrues wages at month end and pays them after month end. It recognizes depreciation each month. It also recognizes utilities (electricity and natural gas) each month.

Natural gas is pre-paid on a quarterly basis and actual usage is billed at the end of the period. At the end of each month, XYZ estimates its gas usage to determine the monthly expense.

Electricity is also paid on a quarterly basis but the supplier bills actual usage. At the end of each month, XYZ estimates its electricity usage to determine the monthly expense.

This example uses a rent expense account for the amortization of, or rent payments associated with, ROU assets.

A "right of use" asset may or may not be recognized depending on the characteristics of the ROU.

Please go to the Leasing page for illustrations of this issue.

Account

The accounts and account numbers used in this example correspond to the accounts and account numbers used in the universal COA which can be downloaded here.

Account #

Debit

Credit

Raw material

5.1.1.2

20,000

 

Employee benefits

5.1.2

40,000

 

Depreciation

5.1.4.2

30,000

 

Utilities

5.1.1.3.4

10,000

 
  Cash

1.1.1.1.2

 

5,000

  Accounts payable

2.1.1.1

 

15,000

  Accrued wages and salaries

2.2.1.1.1

 

26,000

  Accrued social security tax

2.2.1.1.4.1

 

8,000

  Accrued health insurance 2.2.1.1.4.2

 

4,000

  Accrued workers compensation insurance 2.2.1.1.4.4

 

2,000

 

Accumulated depreciation

1.5.(1)

 

30,000

  Prepaid natural gas

1.4.1.9.1.2.2

 

6,000

  Accrued electricity

2.2.1.2.1.2.1

 

4,000


This example only includes "short-term employee benefits" which IAS 19.9 defines to include: wages, salaries and social security contributions; paid annual leave and paid sick leave; profit-sharing and bonuses; and non-monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) for current employees.

In some jurisdictions, in addition to social security contributions, healthcare and other similar contributions are also mandated by law.

Although US GAAP (ASC 710-10-30) does not include any guidance on "short-term employee benefits", the accounting would be the same.

However, "There are a number of significant differences between US GAAP and IFRS in the area of accounting for pension and other postretirement and postemployment benefits."

A discussion of these issues is provided here link: PwC.

It also expenses SG&A costs (XYZ only rents SG&A facilities).

Account

Account #

Debit

Credit

Employee benefits

5.1.2

80,000

 

Rent

5.1.4.1

10,000

 

Depreciation

5.1.4.2

9,000

 

Utilities

5.1.1.3.4

1,000

 
  Cash, Accruals, Accumulated depreciation, etc. Various numbers  

100,000


In practice, separate accounts (i.e. Electricity 5.1.1.3.4.1.2.1, Natural Gas 5.1.1.3.4.1.2.2, Water And Sewage 5.1.1.3.4.2, Waste Removal 5.1.1.3.4.3, etc.) would be used for the various utilities.

Since the credits are illustrated in the previous example, they are not shown again.

When XYZ manufacturers a product.

Account

Account #

Debit

Credit

WIP: Product 123, Direct material

1.3.3:123, 5.2.1.1.2.1

80

 

WIP: Product 123, Direct labor

1.3.3:123, 5.2.1.1.2.2

170

 

WIP): Product 123, Fixed overhead (depreciation)

1.3.3:123, 5.2.1.2.2.1.1

140

 
WIP: Product 123, Variable overhead (utilities)

1.3.3:123, 5.2.1.1.2.3.6.2

10

 
  Raw material 5.1.1.2  

80

  Employee benefits 5.1.2  

170

 

Depreciation

5.1.4.2

 

140

  Utilities 5.1.1.3.4  

10


The colon delimits the specific item. In this case, a product model.

The comma delimits the expense classified by its function.

When XYZ finishes a product

Account

Account #

Debit

Credit

Finished goods: Product 123

1.3.4:123

400

 

 

Work in process: Product 123

1.3.3:123

 

400


For illustration, this entry is simplified. The information carried over to finished goods would include:

Finished goods: Product 123, Direct material

1.3.4:123, 5.2.1.1.2.1

80

Finished goods: Product 123, Direct labor

1.3.4:123, 5.2.1.1.2.2

170

Finished goods: Product 123, Depreciation

1.3.4:123, 5.2.1.2.2.1.1

140

Finished goods: Product 123, Utilities

1.3.4:123, 5.2.1.1.2.3.6.2

10

When XYZ sells a product:

Account

Account #

Debit

Credit

Trade accounts receivable

1.2.1.1

800

 
Cost of sales (cost of products sold)

5.2.1.1.2

400

 
 

Finished goods: Product 123

1.3.4:123

 

800

 

Revenue (products)

4.1.1.2

 

400


For illustration, this entry is simplified. The information carried over to the cost of sales schedule would include:

Cost of sales (direct material)

5.2.1.1.2.1

80

Cost of sales (direct wages)

5.2.1.1.2.2

170

Cost of sales (fixed overhead, depreciation)

5.2.1.2.2.1.1

140

Cost of sales (vriable overhead, utilities) 5.2.1.1.2.3.6.2

10

During the period, XYZ sold goods that had cost a total of 95,000 to produce (raw material 19,000, employee benefits 38,000, depreciation 28,500 and utilities 9,500).

At the end of the period, it recognized the change in inventory.

An IFRS nature of expense profit and loss statements includes an Increase (decrease) in inventories of finished goods and work in progress line item.

IFRS allows entities to present either nature of expense or function of expense P&Ls.

IAS 1.105: The choice between the function of expense method and the nature of expense method depends on historical and industry factors and the nature of the entity. ... this Standard requires management to select the presentation that is reliable and more relevant...

When a company presents a function of expense P&L because it is more reliable and more relevant, it should also present additional nature of expense information in the footnotes.

IAS 1.104: An entity classifying expenses by function shall disclose additional information on the nature of expenses, including depreciation and amortisation expense and employee benefits expense.

US GAAP does not allow entities to present nature of expense income statements.

IAS 1.IG6 Part I: Illustrative presentation of financial statements ...

XYZ Group
Statement of profit or loss and other comprehensive income (by nature)
For the year ended 31 December 20X7

 

 

 

20X7

20X6

Revenue

390,000

355,000

Other income

20,667

11,300

Changes in inventories of finished goods and work in progress

(115,100)

(107,900)

Work performed by the entity and capitalised

16,000

15,000

Raw material and consumables used

(96,000)

(92,000)

Employee benefits expense

(45,000)

(43,000)

Depreciation and amortisation expense

(19,000)

(17,000)

Impairment of property, plant and equipment

(4,000)

Other expenses

(6,000)

(5,500)

Finance costs

(15,000)

(18,000)

Share of profit of associates

35,100

30,100

Profit before tax

161,667

128,000

Income tax expense

(40,417)

(32,000)

Profit for the year from continuing operations

121,250

96,000

Loss for the year from discontinued operations

(30,500)

PROFIT FOR THE YEAR

121,250

65,500

 

 

 

This item reflects the procedure used when preparing this P&L, which involves expensing costs prior to recognizing revenue as outlined above.

Note: the same general procedure is used for self-manufactured assets and presented in the Other work performed by entity and capitalized line item.

Since US GAAP does not allow nature of expense income statements to be presented, these would be adjustment made at the G/L level only, and would never be reported in a US GAAP financial statement.

Account

Account #

Debit

Credit

Increase (decrease) in inventories of finished goods and WIP

5.1.5

5,000

 
  Raw Material

5.1.1.2

 

1,000

 

Employee Benefits

5.1.2

 

2,000

 

Depreciation

5.1.4.1.2

 

1,500

 

Depreciation

5.1.4.1.2

 

500


As US GAAP does not allow entities to present nature of expense income statements, this item is never taken to a US GAAP income statement.

Then, it took the change to the balance sheet.

Account

Account #

Debit

Credit

Raw Material 1.3.2

1,000

 
Work in process 1.3.3

3,500

 
Finished goods: Product 123 1.3.4:123

500

 

 

Increase (decrease) in inventories of finished goods and WIP

5.1.5

 

5,000


Finally, XYZ recognized its SG&A expenses by function.

Account

Account #

Debit

Credit

Sales payroll

5.2.2.1.1.1, 5.1.2

35,000

 

Rent of sales equipment and facilities

5.2.2.1.1.2.1, 5.1.4.1

5,000

 

Depreciation of sales equipment and facilities

5.2.2.1.1.2.2, 5.1.4.2

4,000

 

Utilities (retail outlets)

5.2.2.1.1.3.4, 5.1.1.3.4

600

 

General and administrative payroll

5.2.2.2.1, 5.1.2

45,000

 
Rent of office equipment and facilities

5.2.2.2.6.1, 5.1.4.1

6,000

 

Depreciation of office equipment and facilities

5.2.2.2.6.2 , 5.1.4.2

4,000

 

Utilities (offices)

5.2.2.2.5.7, 5.1.1.3.4

400

 

  Employee benefits 5.1.2  

80,000

  Rent 5.1.4.1  

11,000

 

Depreciation

5.1.4.2

 

8,000

 

Utilities 5.1.1.3.4  

1,000