FINANCIAL ACCOUNTING. SINGLE ENTRY SYSTEM . CONVERSION METHOD

Question

Find out opening stock

sales 1,60,000

rate 

of gross profit 25% on sales

purchases 1,40,000

closing stock 30,000

Answer 1

 

I will walk you through the calculation, as follow:

 

 

1)  Gross profit percentage is 25%, so the gross profit is $160,000 X 25%, or $40,000.  The cost of sales (inventory sold) is $160,000 less $40,000, or $120,000.

 

Sales                                160,000
Gross profit @  25%             40,000
Cost of Sales                     120,000 

 
2) You know the ending inventory, so you need to back into he beginning inventory, as follows
 
Ending Inventory          30,000
Purchases                 (140,000) purchases were not in the beginning inventory, so you subtract them
Cost of Sales              120,000   the inventory sold were in the beginning inventory, so you add them
Beginning Inventory     10,000 
 

 

3)
PROOF - do the normal inventory "rollforward" to verify ending inventory matches.

 
Beginning Inventory             10,000
Purchases                          140,000
Cost of Sales                    (120,000)
Ending Inventory                  30,000