Inventory and cost of goods sold pdf
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- AUDIT PROCEDURES FOR COST OF GOODS SOLD
- Calculating-cost of goods sales amount
- Cost of goods sold
- Cost of Goods Sold Statement:
Cost of goods sold or COGS represents costs that are directly related to the manufacturing and distribution of products. The primary costs that must be included in the calculation of cost of goods sold include raw materials, packaging, overhead, direct labor and indirect labor if it is production related, i.
AUDIT PROCEDURES FOR COST OF GOODS SOLD
The interrelation ship of inventories and cost of goods sold makes it logical for the two topics to be considered together. Inventories — The term inventories is used in this chapter to include 1 goods on hand ready for sale, either the merchandize of a trading concern or the finished goods of a manufacturing; 2 goods in the process of production; and 3 goods to be consumed directly or indirectly in production: raw materials, purchased parts, and supplies. Inventories have received much attention in both the accounting and auditing literature, as well as in the discussions among professional accountants due to the following reasons. In conjunction with auditing of inventories and cost of goods sold, the auditors will also obtain evidences about the related purchase, sales, purchase returns, and sales returns accounts. The study and evaluation of accounting system and internal controls relating to inventories helps the auditor in determining the nature, timing, and extent of substantive procedures to be carried out during the course of audit. The following are the general aspects of internal control relating to inventories.
Calculating-cost of goods sales amount
Cost of goods sold, or COGS, on the income statement, represents costs and expenses involved in the manufacturing, sourcing, and shipping of a product or service. Cost accountants can track raw material purchases and prices, direct labor rates and efficiency, as well as overall factory overhead usage. Expenses for a merchandising company must be broken down into product costs cost of goods sold and period costs selling and administrative. Brock Company makes candy. For goods, these costs may include the variable costs involved in manufacturing products, such as Goods manufactured may remain in stock for many months, especially if a company experiences seasonal sales. The following are the details available about the manufacturing activities year ended
Cost of goods sold
Cost of goods sold COGS is the carrying value of goods sold during a particular period. Costs are associated with particular goods using one of the several formulas, including specific identification, first-in first-out FIFO , or average cost. Costs include all costs of purchase, costs of conversion and other costs that are incurred in bringing the inventories to their present location and condition.
Remember, cost of goods sold is the cost to the seller of the goods sold to customers. Even though we do not see the word Expense this in fact is an expense item found on the Income Statement as a reduction to Revenue. For a merchandising company, the cost of goods sold can be relatively large.
Audit Procedures. The cost of goods sold testing is conducted at the same time as inventory testing is carried out for purposes of the balance sheet. The cost of goods components can broadly be categorized into two major components. If the auditor has been able to test the amount of inventory that is readily available on hand, in addition to the amount that was available initially, the amount can be calculated by simple addition.
Inventory valuation is the monetary amount associated with the goods in the inventory at the end of an accounting period.
Cost of Goods Sold Statement:
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