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Audit Of Inventory And Cost Of Goods Sold Pdf

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Chapter 6 Inventories Chapter 4 Financing De Chapter14 Audit of the


Depending on the nature of an enterprise, the value of stock may be substantial, surpassing or only second to that of property, plant and equipment. Appropriate classification and accurate determination of the quantity and cost of stock are necessary for proper determination of the result of the operation of an enterprise and for the presentation of current asset in the balance sheet. There are several methods of valuing stocks which give rise to wide difference in the result of the operation of an enterprise. It is therefore important to have an understanding of these methods and know when they can be applied. This paper covers the accounting for and auditing of stock and work in progress. It is hoped that at the end of the presentation members of staff will appreciate the importance and different application of stock accounting and apply the procedure required for the audit of stock and work in progress. Most of the big clients with turnover of over , , are in this category.


Form A is used by business return filers Form , and S to calculate and then deduct the cost of goods sold by a corporation or partnership. This calculation must be separately reported on the return as set forth below. Specifically, business entities that produce or purchase items for sale with the intent to create income are required to accurately report the cost of the items that are sold. To meet this reporting requirement, a business entity must maintain certain accounting and inventory records. Personal service companies doctors, lawyers, painters, carpenters, etc. The cost of goods sold calculation adds all purchased materials or products for resale and any direct labor or other direct expense that was incurred in the manufacture, production, or acquisition of the products being offered for sale by the entity to the beginning inventory.

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.

Inventory valuation is the monetary amount associated with the goods in the inventory at the end of an accounting period. The valuation is based on the costs incurred to acquire the inventory and get it ready for sale. Inventories are the largest current business assets. NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.

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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.


Audit of Inventories and Cost of Goods Sold

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Methods of Inventory Valuation

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Form 1125-A – Cost of Goods Sold

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Omar W. 28.05.2021 at 12:12

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Cerise B. 29.05.2021 at 12:26

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Mercedes R. 01.06.2021 at 07:49

The cost of goods sold might be the biggest cost or expense for many companies since it is usually the main cost that directly links to the sale of goods.

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Travis K. 05.06.2021 at 07:52

12–12 The auditors' analysis of the Cost of Goods Sold account of a manufacturing concern might manual and read the section on inventory to prepare for the.