Accounting System

Effect of payouts on the cost of sales portion of the P/L

2016/06/29

払出がP/L上の売上原価算出部分へ及ぼす影響

The biggest difference between the trichotomy and the continuous recording method

In other words, whether the cost of goods sold is determined by deducting inventory at the end of the month (deducting inventory results) or by continuously updating the cost of goods sold at the time of shipment, the cost of goods sold on the P/L can be expressed as follows.

  • In stock at the beginning of the month + In stock for the month - In stock at the end of the month = Current cost

In system accounting, when we calculate material cost, manufacturing cost, and cost of sales in that order, we do not aggregate the beginning of the month, the current month's receipt, and the end of the month's balance in the cost of sales account and purchase account, but directly collect and add and subtract the G/L data and paste them to the P/L according to this format.

In addition, the inventory left at the end of the month is the result of the inventory transfer journal entry shown below, which means that the remaining inventory in inventory that has not been expensed is deducted.

  • Dr. Opening stock    Cr. goods
  • Dr. goods    Cr. Closing stock

In the trichotomy, the arrival of goods is processed in the purchase account and the commodity account appears only at the time of inventory transfer, but in the continuous recording method, the amount of inventory is continuously monitored by the movement of the commodity account and therefore, the purchase account, opening stock and closing stock are not used.

The biggest difference between this method and the trichotomous method is that instead, the payment of goods is recorded.

In other words, a system that continuously records the movement of goods does not calculate the cost of goods sold using the trichotomous method, but it uses the trichotomous method in calculating the cost of goods sold on the P/L. I think this is the source of the confusion.

Accounting for Extraordinary Losses under the Trichotomy Method

month-end closing process

  • Dr. Opening stock 100    Cr. goods 100
  • Dr. goods 120    Cr. Closing stock 120

The cost of sales calculation portion of the P/L is currently stated as follows

  • 100 at the beginning of the month + 150 in the current month - 120 at the end of the month = 230 in cost of sales

Report defective merchandise as an extraordinary loss and deduct it from purchases.

Under the trichotomy method, cost of sales is calculated by the movement of the purchase account, so it is the purchase account that is debited and the merchandise account is not used except for inventory transfers in the closing journal.

  • Dr. Special loss 5     Cr. Purchase 5

A common misunderstanding is "In practice, the item 5 is deducted from the 120 at the end of the month in the above formula because the item for the extraordinary loss is taken out of the inventory at the end of the month and disposed of. Oops, isn't it recorded in the cost of goods sold but later double recorded as an extraordinary loss? That's what it's called.

Physically, we take out and dispose of the defective goods from the inventory at the end of the month that remains in the defective warehouse, but since the defective goods are already recorded in the purchase cost of the month at the time of recording the purchase, it is necessary to deduct the amount not recorded as an expense from the purchase or deduct it from the cost of sales.

  • 100 at the beginning of the month + 150-5 at the end of the month - 120 at the end of the month = Gross sales price of 225.

So, it is not bad if you deduct it from the purchase account, but in this case, you pretend that you did not purchase anything, so you will not know how much you actually purchased in the month.

By the way, the effect on the cost of sales on P/L is the same regardless of whether you book the extraordinary loss before or after the closing process.

Merchandise defects will be recorded as an extraordinary loss and deducted from cost of sales.

Clarify in the cost of sales calculation portion on the P/L that it is deducted from cost of sales in the other account transfer account.

  • Dr. Special loss 5    Cr. FG Transfer to Other Account 5
  • 100 at the beginning of the month + 150 of the current month's manufacturing price (FG Transfer to Other Account 5 + 120 at the end of the month) = 225 of the selling price

The result is the same, but by indirectly deducting the cost of sales, you can figure out what you originally purchased in the current month in PL.

Accounting for Extraordinary Losses under the Continuous Recording Method

month-end closing process

In the case of the continuous recording method, the inventory at the beginning of the month happens to be 100, and purchases and payouts are made repeatedly during the month, resulting in a month-end inventory of 120.

Recording a product defect as an extraordinary loss and deducting it from the product

  • Dr. Special loss 5    Cr. goods 5

On the P/L, it means that the month-end inventory is 120 as a result of an additional payout of goods due to an extraordinary loss.

Again, month-end inventory is the cost of sales minus the portion not to be expensed, and if we make the mistake of subtracting items from month-end inventory with an eye to practice, we will end up recording double expenses.

  • 100 at the beginning of the month + (150 for this month - 5 for Goods issue) - 120 at the end of the month in stock = 225 on sale cost

In this case, you won't know how much you originally purchased in the month.

Merchandise defects will be recorded as an extraordinary loss and deducted from cost of sales.

Clarify in the cost of sales calculation portion on the P/L that it is deducted from cost of sales in the other account transfer account.

  • Dr. Special loss 5    Cr. FG Transfer to Other Account 5
  • 100 at the beginning of the month + 150 at the end of the month (FG Transfer to Other Account 5 + 120 at the end of the month) =Sales Cost225